Owning or Renting? Your Credit Union Can Help You Decide.
What an exciting time of your life! If you are about to take the plunge and consider purchasing your first home, congratulations. But how do you decide if the time is right? Your first stop should be your credit union. Many people begin their adult lives renting an apartment or home, and renting certainly has its place. But when Fannie Mae (the Federal National Mortgage Association) did a survey recently, 80% of those responding to the survey related that they wanted to own a single-family home with a yard as the ideal place to live. The American Dream, right?
Well, usually. For many years, the United States tax code has rewarded homeowners with significant tax breaks for home ownership. If you do the math regarding deductions, you will find that the federal government actually picks up 0 for every 00 you spend in mortgage interest and taxes if you are in the 28% tax bracket (as many home owners are). So it's important that you take a hard look at whether or not that higher mortgage payment actually is "higher" once you factor in the tax benefits. So how do you figure this out? Make an appointment with your credit union. Your credit union is there to assist and support you in making financial decisions, a particularly valuable partnership for you if you are new at this. So use the resources available to you there.
Sometimes, even when considering the associated tax benefits, home ownership may still seem beyond the reach of first-time home buyers. Actually, half of those currently renting their homes or apartments are renting because they have not been able to come up with a way to buy a home. After all, you need a down-payment, right? Well, yes and no. There are programs available through many credit unions which can assist home buyers with financing a home loan. You need to check it out to be sure what may be available to you through your credit union.
Does this mean you should ALWAYS buy rather than rent? No. Renting is appropriate in many cases. If you can pay 0 in rent, and can actually afford 0 a month for housing, you can bank 0 a month toward a down payment. A 10% down payment on a 0,000 home is ,000, right? And if you rent for three years, how much could you save toward this ,000? The numbers don't lie. You could save ,800 in those three years. What does 0 a month look like? Well, if you fill up the car 3 less times, and eat out 3 less times, you are at about 0 a month in savings. And I'm betting that last 0 would be pretty easy to find, too. Even better would be a 20% down payment. Coming up with a 20% down payment would allow you to skip PMI, or Private Mortgage Insurance, an additional expense added into your mortgage payment. Think about it.
There are other benefits to buying your own home. It will come as no surprise to you that homes have gone up in value consistently in many areas of the country. But you don't realize this benefit if you don't own a home. In many cases, home owners have gained hundreds of thousands of dollars in appreciation of the value of their homes in a relatively short period of time. Think about this. You purchase a home for 0,000 with a ,000 (or 20%) down payment. In three years, your home has escalated in value to 0,000. Mortgage payments are mostly interest in the first years of the loan, so you can't expect that you gain much in the early years of your loan. HOWEVER, because of the appreciation in the value of your home, you now have an equity position worth not ,000, but 0,000 since your mortgage balance is still about 0,000! Magic, right? Well, it depends on what you do next.
If you have considerable higher cost debt, like credit card balances, it may make sense for you to refinance your home and pay off the higher interest rate debt. And remember, the interest on your HOME is deductible when you do your taxes. But the interest you pay on credit cards, which is almost always at a higher rate than home mortgage interest, IS deductible. So refinancing your home may well be a smart decision if you use the proceeds to improve your overall financial position with regard to debt.
No matter what you decide to do, be sure you factor in advice from your credit union in your decision equation. Your credit union truly is there to help you. Don't pass up the opportunity to obtain the information they have to offer when you make financial decisions.
About the Author: John Holder is the founder of http://usacreditunions.com. We have a dedicated page of detailed information on every Credit Union in the USA and make it easy for you to find one for you to join.