7 SURPRISING REASONS TO BUY A HOME IN 2017
One of the best investments one can make is buying a home, especially at a young age. This gives your money time to go to work for you vs. paying rent to build someone else's equity.
If you're paying rent in 2016, here are a few reasons to buy a home in 2017.
One of the best ways to build wealth is to leverage, time. Albert Einstein calls compounding the most powerful force in the Universe.
If someone offers you a choice between taking 1 million dollars this very instant or a single penny that doubles in value every day for 31 days, which would you choose? The million dollars right? What if you take the doubling penny....
On day 5 you have 16 cents, and that one million is looking a lot like the better choice. By day ten you have $5.12 and you're kicking yourself for not taking the 1 million dollars. After 20 days you're looking at $5,243, a lot less than the one million you're wishing you took. The good news is that over the next 11 days, the mathematical explosion will occur. By day 31 you will have well over 10 million dollars.
After 10 years of paying $1,000/month in rent, you have given away $120,000. That is a lot of money and time that could have been used towards compounding.
Here are 7 Reasons to Buy a Home in 2017!
Rent
Rental prices are increasing at fast paces in the United States. In my market of Raleigh, North Carolina we have the fastest appreciating rents in the sotuheast quadrant of the country. We also have affordable homes. No matter what city you are in, if you are paying rent then you are helping to build someone else's equity. For anyone paying rent, there is no better time to buy a house than right now.
If you're paying rent, you're not helping yourself grow wealthy, you're helping someone else grow wealthy. Over the course of 10 years at $1,000/month you've either paid down your mortgage or someone else's by $120,000. What would you have done with that $120,000?
Everyone needs a place to live and no one understands this concept better than landlords. Every month they are collecting rent checks that are paying off their mortgage. Slowly but surely that investment the landlord made in the home is building their wealth, a lot like the magic penny.
Rather than help someone else grow wealthy, buy a home (or several over the course of a few years) and help yourself grow wealthy!
Interest Rates
If you're not paying attention to interest rates as we close out 2016 then you need to start right now. Over the last few weeks, interest rates haven't just gone up, they have skyrocketed. A view of interest rates from BankRate.com
Interest rates are one of the best, if not the best reason to buy a home in 2017! Right now, they are at historic lows. Trying to predict which way interest rates will go is impossible, the same way stocks are. Interest rates fluctuate the same way home prices do.
Still, even though rates have gone up they are at historic lows if you look back at a much longer period of history. Anything under 4 is exceptional. A lot of people are going to regret not buying a home during this time-period. Many won't realize the opportunity they have right now until it's too late!
On a $300,000 home with 5% down a 4.0% interest rate and a 4.5% interest rate have a difference of thirty thousand dollars over the course of 30 years. That means the home will cost an extra thousand dollars per year if the interest rate goes up a half a percentage point. That is $1,000 you can keep in your pocket by buying a home at the right time.
Build Your Own Equity
You have to start somewhere, and the sooner you begin the more time you have for compounding! You've seen how powerful compounding can be, and in order for it to reach its true potential you need to give it time.
Building your own equity may seem like something small in your twenties and thirties. Retirement is not in sight and you don't have that many financial responsibilities, yet. Many millennials are using their paychecks on things like expensive sports cars, and fancy clothes. These are not items that will help you build equity.
You need to be able to see the future before it happens in order to create the life you want for you and your family. It's your responsibility.
We've already talked about the role time plays in creating wealth. The earlier you start compounding the greater the chance of that mathematical explosion. Put your money to work for you, be patient, and watch what happens.
Many folks don't save for retirement and their saving grace is their home.
Imagine if you had bought a home every year and rented them out. Eventually, that compounding is going to afford you a retirement many people dream of.
Home Prices are Stabilizing
Stabilizing home prices are a great sign to buy a home. As prices stabilize in 2017 it likely indicates a bottoming housing market. If you are looking to buy a home for investment purposes one of the best things you can do is focus on the home's location and the desirability of the area.
Not only are housing prices stabilizing but interest rates are rising. As interest rates climb buyer purchasing power will decrease and the home you were able to afford is now out of reach. With home prices likely bottoming and interest rates at historic lows, 2017 is a great time to buy.
Down Payments
One of the biggest reasons people don't buy a home is because they think they need a 20% down payment. In 2017 you can buy a home with as little as 3.5% down and sometimes you can find programs that will let you put 0% down to buy a home.
In 2015 I used around $4,000 to buy a home for around $100,000, and in 2017 that home is worth nearly $100,000 more than when I originally purchased it. The reason I bring that up is not to brag, but to make sure you understand what is possible from buying a home. That return on my investment is unbelievable and in under two years. Here is a screen shot to the right from my phone that show a few of the details.
Being able to buy a home for only a few thousand dollars is incredible.
There are several caveats to putting down less than 20% when buying a home, one of those is mortgage insurance.
Mortgage Insurance
Buyers should not be afraid of mortgage insurance, in fact, they should embrace it. It's one of the reasons I was able to buy a home with such little money down, and create such a large return on my investment.
Mortgage insurance is a fair tradeoff for the borrower and lender. The borrower can buy a home with less than 20% and the lender is reducing their risk by charging mortgage insurance.
There are different types of mortgage insurance. Conventional mortgages have private mortgage insurance (PMI). FHA loans have a different insurance structure, and you pay what's called a mortgage insurance premium (MIP). One of the main differences is that there are ways to get rid of mortgage insurance on conventional loans, while mortgage insurance on an FHA loan stays with the borrower for the life of the loan. That's a long time to be paying mortgage insurance if you use an FHA loan, so make sure your lender discusses all of your options with you.
Tax Breaks
If you're buying a home in 2017 you will have some nice tax breaks at the end of the year.
From mortgage interest to closing cost write-offs, the world of homeownership is one of the best ways to create financial freedom. You can also write-off any points you paid on your home loan.
When it comes time to sell down the road you can also avoid a capital gains tax if you've lived in the home for two of the last five years. Depending on your real estate investment strategy this could mean tens of thousands of dollars in savings.
Keep in mind this is tax information from a local Realtor in Raleigh, NC and that you should always consult with an expert when formulating your own tax strategies.
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Posted by Ryan Fitzgerald on Tuesday, November 22nd, 2016 at 3:01pm.
www.AFFORDAHOUSE.net
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