Pay Yourself First by Buying a Home
BY NANCY BIERENGA, REALTOR®, E-PRO, ABR, éLAN REALTY, PAST PRESIDENT, WEST MICHIGAN LAKESHORE ASSOCIATION OF REALTORS
Here's why you should pay yourself first by buying a home.
Home ownership is a form of forced savings. When you pay your mortgage each month, you are building equity in your home that you could tap into later in life if you’d like to renovate. If you do a wise renovation you increase even more the equity you have in the home by making the home more valuable.
You could also use that equity to pay off high-interest credit card debt (not a very wise decision, but a possibility), or even send a child to college. Or, when you’re at least 65 years old you could use the equity to send yourself a pay check every month using a reverse mortgage.
As a renter, you guarantee that your landlord is the person with that equity.
Home ownership provides tax savings. One way to save on taxes is to own your own home. You may be able to deduct your mortgage interest, property taxes, and profits from selling your home, but make sure to always check with your accountant first to find out which tax advantages apply to you in your area. And, depending on what happens with tax reform in the near future, this savings could be in jeopardy.
This well-maintained three plus bedroom ranch has lots of room inside and out. It's close to Whitehall but out in the country.
Home ownership allows you to lock in your monthly housing cost. When you purchase your home with a fixed-rate mortgage, you lock in your monthly housing cost for the next 15, or 30 years. Interest rates have remained around 4% all this year after edging up from 3% a couple years ago, marking some of the lowest rates in history. The value of your home will continue to rise with inflation, but your monthly costs will not.
Your payment can be expected to increase some each year due to increasing property taxes and insurance, but the basic cost of purchase, the principle and interest, will stay the same unlike renting where the cost often increases every time you sign a new rental agreement or lease.
Buying a home is cheaper than renting. According to the latest report from Trulia, it is now 37.4% less expensive to buy a home of your own than to rent in the US. That number varies throughout the country but ranges from 6% cheaper in San Jose, California to 57% cheaper in Detroit, Michigan. In the Muskegon area it is at least 10% cheaper to buy than to rent.
If you were to purchase a three bedroom bath-and-a-half home for $125,000 with 5% down, you could expect your payment to be about $585 plus taxes and insurance depending on location. You could expect the taxes and insurance to add around $200 to your monthly payment. If you were to rent that same house you could expect to pay about $1,200 plus about $30 per month for insurance on only your contents.
No other investment lets you live inside of it. You can choose to invest your money in gold or the stock market, but no matter which, you will still need somewhere to live. In a home that you own, you can wake up every morning knowing that your investment is gaining value while providing you a place to live. It lets you invest in yourself!
Nancy Bierenga, of élan Realty, is past president of the West Michigan Lakeshore Association of REALTORS®, a member of the National, Michigan, and West Michigan Lakeshore Associations of REALTORS®, and the Greater Muskegon Woman's Club. She is an Accredited Buyer's Representative, a Certified e-Pro REALTOR®, and a Certified Fair Housing REALTOR®. She and husband Robert have lived in Muskegon since 1996. Phone Nancy at (231) 730-0887, email Nancy@HousesByNancy.com, stop by élan Realty's office at 4075 Airline Rd., Muskegon or visit the élan Realty on Facebook here.
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