I named my Company 3 Reasons Home Loans because there are 3 fantastic reasons to buy a home.
#1. Tax savings extraordinaire. In a nut shell it is about $1,000 in net savings when you own compared to renting.
$2,600 in rent is like $3,600 when paying a mortgage.
Here is the math. Property tax and mortgage interest are tax deductible. On a $600,000 purchase and a $480,000 mortgage
you are going to pay $625.00 a month in property taxes and or $7,500 a year (using 1.25% county property tax basis). Mortgage interest in
the first year is $34,697. This is a total tax deduction of $42,197. On an income of $115,000 yearly that represents roughly $12,667 in a
a reduction of tax liability. (Here is the simple math: 115,000 income - standard deductions of either $12,950 for a single person or $26,000 for
a married couple - the tax basis is either $102,050 or $89,000. If you use 30% as a tax percentage than the tax liability for $102,050 is $30,615
and for $89,000 that tax liability is $26,700. If you subtract the $42,197 (interest and taxes paid) from $102,050 = $59,593 the new tax liability
is $17,955 or $12,660 less for a single filer and if you deduct $42,197 from $89,000 =$62,300 the new tax liability is $14,041 or$12,659 less for a couple)
I know that is complicated but that is why I started with $1,000 in net savings. (email me at brooks3rf@cs.com with questions)
#2. Equity: (This is a double win really. It could broken up in point #2 and #3 but follow the logic here) So on the example above
you paid $600,000 in 2023. Lets say you own this home for the next 10 years. What is the home worth in 2033? This of course is very difficult
to calculate based on what market you are in but lets just use a $100,000 for appreciation in 10 years. That home is worth $700,000. The mortgage
balance is now $414,000. So the equity (appreciation and or value - mortgage balance) is now $286,000. Your original investment was $120,000. If you
stay in that home for 15 years and the home is worth $750,000 and the mortgage balance is now $358,000 then your equity is $392,000. So with each
mortgage payment you are amortizing (latin for killing off) a mortgage and building equity. Obviously these are rough examples. I did one for clients
who bought in Bakersfield in 2022 with a VA loan for 100% financing. They paid $320,000 and I did the 15 year math. In the 15th year the mortgage will
be down to $203,000. Lets say the home is worth $420,000 (Just a $100,000 more) They created $217,000 in equity in that 15 year time frame! Giant win.
#3. American Dream. Home ownership and or property ownership means you are in control. You own so you get to do what you want with the property.
What I want could vastly different from what you want and that is okay. You get to call the shots. Most home owners want to create value with their property
so they typically upgrade their homes as the years go on. This 3rd topic is of course hard to quantify because it means a lot of different things to each
individual property owner. Yet I don't quite think I can say enough about home owner satisfaction and the reality of owing your own land, putting down roots,
being an integral part of the community and having a place to build memories and allow your children to grow up. (yes. . America the Beautiful is now playing
on spotify)
I always say check with your accountant on specific tax items, and the appreciation models of course vary but in the long run these are 3 Great Reasons
to buy a home.