Trends in home prices, personal income, and mortgage rates — combined with the tax advantages of home ownership — make this an excellent time to turn the dream of owning a home into a reality. If you’re thinking of purchasing a home, you’ve probably already asked yourself, “Can I afford to buy?” Another good question to ask is, “Can I afford to continue renting?” No matter what you’re currently paying for rent, your total cash outlay over a period of several years will probably add up to a much higher total than you may have realized. The following chart shows how quickly the rent payments you’re making add up figuring in what this money would earn invested at 5 percent interest.
With the money you are currently spending on rent, you could be building equity in your home. Keep in mind, too, that over the years your income most likely will increase faster than any increase in your mortgage payment. Rent payments, on the other hand, tend to increase – right along with your paycheck.
Buying vs Renting
Homeowner Tax Advantages
When you’re figuring out how much you can afford to commit to monthly mortgage payments, don’t forget the tax advantages of homeownership. Both property taxes and interest payments on a mortgage for an owner-occupied home are currently tax-deductible. In the early years of a typical mortgage, all but a small percentage of each monthly payment is used to pay off the interest on the loan. This means that as a homeowner, your annual taxable income could be substantially reduced by deducting the payments you make on property taxes and yearly mortgage interest. Ask your CPA (certified public accountant), attorney, or tax preparer how buying a home now would affect your tax situation.
Home Value Appreciation
In addition to tax advantages, you can also benefit from any increase in the value of your home through appreciation and improvements you add for your own comfort and enjoyment.