Like I mentioned last week, the market continues to be good for buyers. It’s so good, in fact, that I thought I’d dedicate a column to explaining why renters should consider buying right now. While I know numbers can turn a lot of people off, I think it’s important to use an example so you really know what I’m talking about.
Let’s say you’re a first time homebuyer who’d like to purchase a $200,000 home. You don’t have money for a down payment, but you have a job and good credit. Here’s how this could work:
Estimated monthly expenses
Loan $ 950
Taxes $ 200
Insurance $ 75
“But what about other expenses?” you ask. “If I own my home, I can’t call a landlord to fix things.” That’s true. At some point, you’ll need to paint your home inside and out, put a new roof on, replace the water heater, etc. So, let’s estimate about 1.5 percent of the purchase price for upkeep each year (about $250), since that’s usually about what it costs.
But wait, there’s good news to balance the maintenance expense. You get to write off some of the mortgage payment. Let’s say your household income puts you in the 25 percent tax bracket. Some of your mortgage payment is tax deductible: about $867 ($667 is the interest on your loan and it’s deductible, as is the $200 homeowner’s tax). So, multiply $667 by 25 percent, and you will get back about $217 per month.
Mortgage payment $1225
Maintenance/upkeep $ 250
Tax benefits $ -217
So, like with anything in life, restrictions apply, but they aren’t too bad. First, you need to have good credit (a credit score in the mid 600s). Next, you need reportable income. It’s time to claim that babysitting money or those waitressing tips as income, because if your income isn’t reportable, you’ll have a tough time getting a loan. For this particular loan that I’ve used as an example, there are minimum and maximum income restrictions based on formulas that have to do with the number of people in your household, the number of children you have, and other factors. The final requirement is job stability. You need to have been in your job for at least a year, and it needs to appear that you will remain in that job for the foreseeable future.
Owning your own home has benefits that go beyond financial. Pounding a nail wherever you want doesn’t require anyone else’s permission. Where to plant trees is your choice. Choosing which paint color to use is your spouse’s choice. And, your elbow grease benefits YOU. If you think you might be able to purchase a home, and you’d like to learn more, call your local real estate agent and they can help you figure it out.