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Reasons to Buy a
Home
If you're like most
first-time home buyers, you've probably listened to friends',
family's and coworkers' advice, many of whom are encouraging
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 real estate moves in
cycles, sometimes up, sometimes down, over the years, real
estate has consistently appreciated. 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.Morgage 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 and interest
payment increases slightly every month. It is lowest on your
first payment and highest on your last payment. On average,
each $100,000 of a mortgage will reduce in balance the first
year by about $500 in principal, 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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