REASONS TO BUY A HOME

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Steps to Buying a Home

Home ownership is a durable (real) investment. Historically, housing has appreciated in value for decades. Although no one can say a specific home in a specific location will increase in value, generally speaking the odds favor most homeowners. Also, monthly mortgage payments (the part that reduces the principal loan balance) become a solid form of savings.
Numerous unique tax advantages are available to homeowners. Unlike other investment tax shelters, home ownership works for you even as you live in your investment. For example, the thousands of dollars you pay in mortgage interest are deductible. The tax deduction alone can sometimes make owning your own home cheaper than renting with "after-tax" take-home dollars.
By accumulating equity in your home, you can later “move-up” to another home, with a good down payment in hand.
Home ownership offers you the opportunity to take control of your housing costs. Mortgage payments (even on adjustable-rate mortgages) are more predictable than rent.
Owning your own home allows great freedom of choice in choosing your community, architecture, interior décor, appliance selection plus whatever method of financing best suits your situation.

Here are a few of the tax advantages of owning a home

Tax deductions:

Example: Loan Amount $100,000

Interest Rate 8%

Loan Term 30 years

1^st Year of Tax Deductible Interest $7,969

Settlement charges for the use of money, such as “points” (A point is a sum equal to one percent of your loan amount. Points are charged to increase a lender’s yield and attract money into the housing market. For example, one point on an $86,000 loan is $860; two points total $1,720.) Even points paid by the seller are, in many instances, a tax deduction for the buyer.
Prepaid interest on prorated loan payments made between settlement and your first mortgage.
City and/or county real estate taxes on the purchased property.

Buying a home adds to your “take home paycheck” because you can increase your withholding allowances in anticipation of mortgage interest payment deductions on your next tax return. By increasing your allowances, you deduct the amount withheld to pay future taxes—which puts your tax refund in your paycheck today, not at the end of the year.
Ask your tax accountant to estimate how many allowances you should claim to compensate for reduced taxes caused by the interest deductions.

To determine what price home you can afford to buy, you can put the most frequently used lenders’ rule-of-thumb to work the 28% and 36% formulas. This is the test many lenders use to qualify applicants for conventional mortgage loans.
The 28% test permits you to spend no more than 28% of your gross monthly income on your total monthly costs, including principal, interest, taxes, and insurance (PITI) and homeowners association fees, if any. For example, 28% of a $3,600 gross monthly income would qualify for a $1,008 per month payment.
The 36% limit covers both your PITI and long-term debts (more than 10 months) such as alimony and/or child support, auto loans, student loans, and personal loans. For example: 36% of $3,600 would qualify for a $1,296 payment per month (PITI plus any recurring debt/$1,008 monthly payment plus $288 monthly debt=$1,296)

In our examples, the affordable loan payments for an income of $3,600 per month is a range between $1,008 for the house payment alone and $1,296 per month including other monthly debt payments.