If you're like most first-time home buyers, you've probably
listened to friends', family's and coworkers' advice. Most of which
probably encourages you to buy a home. However, you may still wonder if
buying a home is the right thing to do. Relax... Having reservations is
normal. The more you know about why you should buy a home, the less
scary the entire process will appear to you.
Here are eight good reasons why you should buy a home.
1) Pride of Ownership
Pride of ownership is the number one reason why people yearn to own
their home. It means you can paint the walls any color you desire, turn
up the volume on your CD player, attach permanent fixtures and decorate
your home according to your own taste. Home ownership gives you and your
family a sense of stability and security. It's making an investment in
your future.
2) Appreciation
Although the real estate market moves in cycles, sometimes up,
sometimes down, over the years, real estate has consistently
appreciated. Most economists state that the value of all money comes
from real estate. The Office of Federal Housing Enterprise Oversight
tracks the movements of single family home values across the country.
Its House
Price Index breaks down the changes by region and metropolitan area.
Many people view their home investment as a hedge against
inflation.
3) Mortgage Interest Deductions
Home ownership is a superb tax shelter and our tax rates favor
homeowners. As long as your mortgage balance is smaller than the price
of your home, mortgage interest is fully deductible on your tax return.
Interest is the largest component of your mortgage payment.
4) Property Tax Deductions
IRS Publication 530 contains
tax information for first-time home buyers. Real estate property
taxes paid for a first home and a vacation home are fully deductible for
income tax purposes. In California, the passage of Proposition
13 in 1978 established the amount of assessed value after property
changes hands and limited property tax increases to 2% per year or the
rate of inflation, whichever is less.
5) Capital Gain Exclusion
As long as you have lived in your home for two of the past five
years, you can exclude up to $250,000 for an individual or $500,000 for
a married couple of profit from capital gains. You do not have to buy a
replacement home or move up. There is no age restriction, and the
"over-55" rule does not apply. You can exclude the above
thresholds from taxes every 24 months, which means you could sell every
two years and pocket your profit--subject to limitation--free from
taxation.
6) Preferential Tax Treatment
If you receive more profit than the allowable exclusion upon sale of
your home, that profit will be considered a capital asset as long as you
owned your home for more than one year. Capital assets receive
preferential tax treatment.
7) Mortgage Reduction Builds Equity
Each month, part of your monthly payment is applied to the principal
balance of your loan, which reduces your obligation. The way
amortization works, the principal portion of your principal increases
slightly every month and the interest decreases. On average, each
$100,000 of a mortgage will reduce in balance the first year by by about
$500, bringing that balance at the end of your first 12 months to
$99,500.
8) Equity Loans
Consumers who carry credit card balances cannot deduct the interest
paid, which can cost as much as 18% to 22%. Equity loan interest is
often much less and it is deductible. For many home owners, it makes
sense to pay off this kind of debt with a home equity loan. Consumers
can borrow against a home's equity for a variety of reasons such as home
improvement, college, medical or starting a new business. Some state
laws restrict home equity loans.
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