Financial Advantages of Home Ownership

I am frequently asked by people who are currently renting, “What are the advantages of home ownership.” Instead of a long explanation I will provide a simplified financial example that I hope will illustrate the financial advantage home ownership.

Assumptions

    
 

Current Rent:

$1,000

  
 

Purchase Price of Home:

$200,000

  
 

Down Payment:

3.5% or $7,000

  
  Financed Amount
$193,000
  
 

Interest Rate:

6.50%

  
 

Years You Stay In Home:

5

  
 

Property Tax Rate:

1%

  
 

Annual Home Appreciation Rate:

3%

  
 

Annual Rent Increase Rate:

1%

  
 

Personal Tax Rate:

28%

  
       

Calculations

Rent

Own
 

Average Monthly Payment Over 5 Years

$1,040

$1,213
 

Tax Savings Per Month (28% Tax Rate)

$0

$271
 

Monthly Payment After Tax Advantages

$1,040

$942
 

Total Paid Out in 5 Years

$62,400

$56,520
       
 

Monthly Payment at End Of 5 Years

$1082

$1,213 ($942)
       
 

Price of Home After Appreciation

  

$225,000
 

Loan Balance After 5 Years

  

$180,000
 

Net Equity After 5 Years

$0.00

$45,000

At the end of 5 years, with almost no difference in the amount spent monthly for payments vs. rent, you will have a fixed payment that will be lower than the then current rent price and almost $45,000 in equity. If you would like to experiment with a rent vs. own calculator, check out this web page. Want to know how much home you can afford?

(Q): I would like more details on the tax savings.
(A): Tax advantages of home ownership

(Q): So I pay the mortgage all year and get the "tax benefit" back as a refund?
(A): You could do that; I don't. I adjusted my tax withholding (W4) so I owe the IRS nothing and the IRS owes me nothing at the end of the year. To do the same, see:

If an agent is not saving you money, time and risk, what value are they providing? Call me today to discuss your real estate needs. You will be glad you did.

Eric Fernwood
702-358-8884
EricFernwood@Gmail.com