Buying Homes : Benefits of Buying Homes
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| Benefits of Buying Homes instead of Renting |
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There are several benefits of buying homes, instead of renting. The most obvious is the fact that your monthly rental payments are simply gone - monthly mortgage payments on the other hand, add to the equity in your own home. Rental payments are essentially flushed down the toilet as you have nothing to show for them after the current month (for which you paid the rent) is over. Mortgage payments pay down the principal (that is, part of the loan amount) in addition to the interest that the mortgage bank is charging you. Under current US tax laws (as of 2006-2007), you can write off the entire interest amount from your annual tax liability. Note that ONLY the interest can be used as a deduction (not any part of the principal amount, or other fees, that are included in each mortgage payment). The tax savings from this nifty loophole can add several thousand to your yearly income tax refund! Note however, that in some cases where you own a home-based business, you may be allowed to write off part of any home rental fees too. Usually this is strictly interpreted as the portion of the home that you (or them) are using for the home business (not the entire rental amount). When you buy a home, the property immediately becomes an asset - at least the portion of the value of the home that you have paid for. Normally there is a down payment (10%, 20% or more) - plus over time as you (or them) make regular mortgage payments it increases your equity in the home. Property values almost always rise, this results in higher equity for you - as your liability on the mortgage is for the original loan amount (minus your payments). Your credit rating also improves dramatically when you have a home mortgage and you pay the mortgage on time regularly. Creditors see the original loan amount, and the current loan balance - thus they can immediately see the direct cash value that you have in your home. Note that property value increases usually don't reflect in credit scores - however it is likely that a 10 year (or longer) history of timely mortgage payments also takes into account property value increases over the large time period.
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On the other side of the coin, when you own a home you are responsible for all repairs. If you happen to be handy with tools, this may not be too much of a problem. But you have to consider that there will be expenses for materials or new appliances. Most men love to work on their own home, they don their Ralph Lauren toolbelt and watch their Bob Vila videos before spitting on their hands and getting to work. Really, there are some things that are best done by professionals - plumbing and electrical being the two most important (dangerous) items. It often costs more if a plumber (or electrician) has to undo your "repairs" before actually performing the repair. Building a shelf, or patching drywall, or changing a lightbulb is one thing - trying to sweat a hot water line to make it fit your new gold plated faucet is another story altogether! Here is a useful do it yourself blog. Yes, there are many things that the King of the Castle can do by himself. Without much risk of damage to himself or to the thing being repaired. Some home improvement stores offer do it yourself classes - it can be fun and fulfilling, not to mention cost saving. And lest any charges of chauvinism fly, yes, women too are very good with tools and home repairs/improvements!
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If you rent a home, you are at the mercy of the landlord (or owner) of the house or building. As all repairs are paid for by the landlord, you are also at their mercy to get things fixed, such as an overflowing toilet or broken refrigerator. You may not be permitted to make any major changes to the rooms or home, since you do not own it. Landlords often refuse any requests for structural changes such as combining smaller rooms. Some landlords or property owners may even refuse to allow your choice of colors, or they may seize your security deposit if they decree that your color choices have damaged the property. Pets too are something many landlords refuse to allow. Even keeping a goldfish could violate your rental lease contract. Yes, tenants do get evicted for owning a fish - NO PETS means NO PETS, if so stated on the rental agreement. Rental rates can rise annually, there are local laws and regulations that permit landlords to raise rent based on a local index and/or any improvements they make to their property (note that these vary greatly, each town or community has their own rules). Even a simple paint job done by the landlord could raise your rent dramatically. Additionally, should the landlord or property owner decide to sell the property, you could find yourself evicted or at the mercy of another landlord who could be a worse specimen. When family and children are involved, such instability can pose problems. Owning your home gives you peace of mind, not having to worry about getting kicked out whenever the landlord decides so.
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Buying homes when one is young(er) allows one to pay off the mortgage before their retirement age (most mortgages are 30 years). Taking into account property appreciation over three or more decades, you would be sitting on a nice size nest egg for your doddering denture days. If you have children, the home is a nice tax free gift you can leave them when you shuffle off the mortal coil and ascend playing your harp. There are loopholes to avoid probate court and death taxes, such as having the child(ren) name(s) on the property deed. This gives them possession of the property upon your bucket kicking, and if they sell it, (under current tax laws 2006-2007) they will likely only be hit with capital gain taxes on the price of the property on the day you depart (NOT your original purchase price) less the current market price when they do sell. Obviously, seek a good lawyer before making this decision, as well as other things in your will. While on the topic of mortgage payments, here is a little known secret that no bank will ever tell you about. With each monthly mortgage payment, make an additional payment equal to at least the principal amount contained in that payment - apply it against the principal of the loan. This will reduce your mortgage period by HALF, that is, a 30 year mortgage will be paid off in 15 years! As an example, if a monthly mortgage payment is $2000 and consists of $1100 interest + $200 escrow + $700 principal; make an additional $700 principal payment to cut your mortgage period in half. Be careful though, banks will try to be sneaky and apply any extra payments toward the LAST payment (therefore continuing to charge you interest on the paid off portion). Always check monthly statements and fight to have your extra principal payments recorded correctly. If more money is available, such as after a good tax return, you could apply more money to the principal amount of the loan. It saves you a ton of money over the lifetime of the loan by reducing the interest amount.
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| Homes for sale and buying homes |
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Buying homes is something almost every person will do at least once in their lifetime. The home buying process is neither simple nor easy, especially for first time home buyers. Choosing the right home from the myraid of choices in homes for sale can be nerve wracking. Home purchase loans are something every person will have to deal with - unless your last name is TRUMP (or you hit the lottery). After going through the home buying process (suffering would be a better way to put it); I have decided to put together this website with information on buying homes. Click on the navigation menu on the left to read all the pages on this site. The information on this home buying website is written for US residents, if you are in another country you may still find the buying homes information useful. This information is a collection of my experiences with home buying and opinions on buying homes, use it at your own risk. There are many factors to consider when you are thinking of buying a home. Some are obvious (can you afford the mortgage?); others can provide nasty surprises during or after the home buying experience. This website offers information on everything that the author encountered during the home buying process, some opinions may be borderline insane - but hey, they worked for me.
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The home buying process is usually in this order:
Getting a mortgage is simpler than getting a personal loan, there is a whole section on credit and home purchase loans with more detailed information. Property is a chunk of land and it (usually) doesn't wander away - so banks always have a way to reclaim (repossess) the property in case of default on the morgage. This makes it easier for the banks to take a risk and offer you a home purchase loan. However, your creditworthiness is an important issue to get the best loan rates.
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Buying a home is generally better than renting, a whole section is devoted to the benefits of buying your own home instead of renting. The real estate market behaves like a roller coaster, it has ups and it has downs. Generally when mortgage interest rates are low, more people are likely to buy a home and this pushes prices up. When mortgage rates go up, less people are inclined to invest in real estate and supply exceeds demand, lowering prices. Other factors such as unemployment rates, inflation, natural (or un-natural) disasters can also affect the real estate market. The decision to buy homes is something you will live with for the rest of your life; so think, plan, and execute the home buying process intelligently. There is some contention between choosing a NEW home (just built, or custom built); versus a USED home. Opinions vary, and tempers flare - both camps swear by their choice. Personally, I bought a 40 year old home - in my opinion they don't build things like they used to. Then again some friends own brand new custom homes they had built, and damn, they are good homes. New homes tend to be more expensive, materials cost more today than they did 40 years ago. Some of the new materials are better, some you just can't get anymore (like natural oak wood floors). Used homes can be cheaper but they will require more maintenance. The end result is usually the same - you either spend more money up front for a new home; or spend less buying the home and then spend on home improvement and repairs. So if you have the means, a new home may make sense - if budgets are tight, an older home will be cheaper to buy, but anticipate that you will be spending money on it in the future.
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Though this may seem obvious, location is the single most important thing to consider when buying homes. I am often surprised when I visit people who have just purchased a home and find:
So before buying a home, read on and think about all the little things mentioned on this site. Then go out and buy your dream home! And yes, owning a home is definitely worth enduring the home buying process!
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