Orlando Real Estate News

 

 

Are you unsure about becoming a HOMEOWNER?

Thinking that you can't afford to BUY a home?

Are you worried about whether home buying is

a good INVESTMENT?

Buying a first home can be an intimidating process. But the first step is deciding if: I want to own a home; I can afford to own a home; owning a home makes sense for me financially and emotionally. If you are still struggling with those decisions, here are some facts that

might help you take that first step towards becoming a homeowner.

 

You Can't Afford NOT to Buy a Home!

 

Over the last ten years, the cost of rental housing in the U.S. has increased an average of 3.5% per year. If that trend continues, that means that an apartment or home renting for

$1,000 per month will cost more than $1,300 a month in ten years. If you rent the same home for ten years, the total amount you would pay for rent will equal $140,777!

 

Year Monthly Rent Total (avg. increase 3.5% per year) Annual Rent

1. $1,000                                                                       $12,000
2. $1,035                                                                         $12,420
3. $1,071                                                                         $12,855
4. $1,109                                                                         $13,305
5. $1,148                                                                         $13,770
6. $1,188                                                                         $14,252
7. $1,229                                                                         $14,751
8. $1,272                                                                         $15,267
9. $1,317                                                                         $15,802
10. $1,363                                                                         $16,355

Total Rent Paid Over Ten Years $140,777

Tax Advantages of Owning a Home Result in Savings None of that $140,777 is returned to you, either through savings or as an investment. Homeownership, on the other hand, has tax advantages over renting a home, and those advantages can help you save money. For many homeowners, part of the monthly mortgage payment "comes back to you" in

tax savings. Here's an example: You purchase a home that costs $200,000. Your

down payment is $10,000 (plus closing costs - expenses incurred to actually process the transaction). You finance the balance with a 30-year fixed rate mortgage at 5.5 percent

interest. Your monthly payments (not including utilities, maintenance, insurance, etc.) are:

Monthly Mortgage & Tax Payments mortgage $1,079

property tax (@1.25% tax rate*) 208

Total Monthly Payment $1,287

tax savings per month (assuming a

25% income tax bracket)

mortgage interest tax deduction $216

tax deduction for property tax 52

Total Monthly Tax Savings $268

Total Monthly Cost After Tax Savings $1,019

*property tax rates vary by city and county

Owning your own home reduces your federal income tax

bill by $268 a month. In addition, as you pay down your

mortgage loan and as home prices rise, your equity - the

wealth you have in your home - increases.

Annual Costs

Homeowner Renter

Total Annual Costs

annual mortgage/rental payment $12,948 $12,000

real estate taxes 2,500 0

Tax Deductions/Equity Builders

mortgage interest deduction 2,592 0

tax deduction for property tax 624 0

mortgage principal accumulation 2,559 0

appreciation

no growth 0 0

loss* -2,000 0

below trend growth** 1,200 0

average growth*** 9,000 0

Annual Costs Less Equity Gains $12,000

no growth 9,673

loss* 11,673

below trend growth** 8,473

average growth*** 673

* assumes a 1% annual depreciation ** assumes a 0.6% annual appreciation

*** assumes 4.5% annual appreciation

Buyers Come Out Ahead

Given that price growth has recently deviated from its usual

pattern of increase, the table above considers four different

price growth scenarios, including a loss. You may be surprised

to see that the homeowner still comes out ahead of the renter

even if there is a decline in the home's value over the next year.

Extraordinarily low interest rates and lower prices have ushered

in some of the best affordability conditions in a generation.

Further, special tax advantages exist for buyers who purchase

before July 1, 2009. Tax laws change, so ask your REALTOR®

or tax advisor for current information.

Homeownership is a Good Investment

for Qualified Buyers

For the majority of Americans, their home is their largest

financial asset and a major player in their investment portfolio.

The NATIONAL ASSOCIATION OF REALTORS® estimates that

home value rises, on average, by 4.5 percent a year. That's a

steady return on investment; one's own home is a much less

volatile asset than stocks, bonds or mutual funds, even when the recent downturn is considered.

As an example, let's look again at that $200,000 home.

Unlike your rental unit, your home should appreciate over time.

Instead of assuming average growth, we assume that prices

are flat in the first year of ownership and pick up, but only

slightly, in the second year. In the third year of ownership, your

home has appreciated to a modest $210,858. After ten years,

assuming a return to an average 4.5 percent appreciation rate*,

your $200,000 home will be worth $286,948. Not only do you

earn a rate of return on your original purchase price, you also

get a return on any subsequent appreciation.

* Average price appreciation from 1970 to 2008 was 6.0%

"Appreciating" Returns

Year Price Growth Home Value

1 0.0% $200,000

2 0.6% 201,200

3 4.8% 210,858

4 4.5% 220,346

5 4.5% 230,262

6 4.5% 240,624

7 4.5% 251,452

8 4.5% 262,767

9 4.5% 274,591

10 4.5% 286,948

Total Appreciation After Ten Years $ 86,948

Homeownership Builds Wealth

for Households

The Federal Reserve Board estimates that homeowners' net

worth has ranged between 31 and 46 times more than that of

renters in the years 1998 to 2007. In 2007, the median net worth

for homeowners was $234,200 compared to $5,100 for renters.

Even though that difference will surely narrow as a result of

house price declines since 2007, median homeowners will likely

still have substantially greater net worth than median renters."

How do you build up your net worth? As a homeowner, you

build wealth in two ways: through paying down the principle

on your mortgage and through those "appreciating returns" on

your home.

We've already seen how your $200,000 home could be worth

$286,948 in ten years. In addition, you are paying down the

principal on your mortgage. Remember that $200,000 you

borrowed at 5.5 percent over 30 years - that debt amount is

decreasing every month and every year as you make payments.

Year Home Price Mortgage Debt Net Worth

1 $200,000 $187,441 $12,559

2 201,200 184,737 16,463

3 210,858 181,880 28,977

4 220,346 178,863 41,483

5 230,262 175,675 54,587

6 240,624 172,308 68,316

7 251,452 168,750 82,701

8 262,767 164,992 97,775

9 274,591 161,022 113,570

10 286,948 156,828 130,120

After the first year, you now only owe $187,441 on a home

that is worth $200,000. As home price growth returns to a

normal level the amount of wealth that you net from

appreciation will increase. At the same time you pay your

mortgage reducing your outstanding debt. As your debt

decreases and the home value increases, you accumulate

wealth from the value of your home. In addition, over this ten year

period, you will have a significantly lower after-tax payment

for housing. Each year as your home appreciates and you

continue to pay down your mortgage debt, you increase your

own net worth.

 

Why Not to Wait?

You may wonder whether it is worthwhile to wait to purchase

your home until prices are at their lowest. Prices are not the only

factor that should drive your decision. Currently, interest rates

are at generational lows that greatly improve the affordability of

homes. Further on the annual cost table, you can see that even

if home prices decline, the possible tax savings of owning a

home lead to a lower cost for the buyer, not the renter. Also,

there are special, additional tax benefits for first time home

buyers that may be available for a limited time only. Finally, and

most importantly, when you have made the decision to commit

to homeownership because you are financially ready, market

conditions are a secondary concern. In fact, the NATIONAL

ASSOCIATION OF REALTORS® 2008 Profile of Home Buyers

and Sellers found that more than four in ten buyers purchased a

home because the buyer was ready to make the commitment to homeownership.

 

Just About Money

The "numbers tell the story" examples should ease your mind

about the financial aspects of becoming a homeowner. But there

are other, less monetary, benefits to homeownership that may

partially explain the fact that buyers buy when they are ready.

Several research studies indicate that homeownership adds to

the value of communities, has positive effects on children, and

even contributes to increased voter participation rates.

Homeownership: The American Dream

More than two thirds of American households own their own

home. They know the benefits of homeownership, from the

accumulation of home equity, tax incentives, and the pride of

owning a place of their own. They also had to take that first step

of deciding "I'm ready to be a homeowner." REALTORS®

assisted many of today's 75 million homeowners in both their

decision to buy and their first home purchase. REALTORS® are

real estate professionals who are members of the NATIONAL

ASSOCIATION OF REALTORS® and who abide by the

Association's strict Code of Ethics and Standards of Practice.

They can help guide you to first-time homebuyer programs in

your area, as well as assist you in searching for and buying a home.

For information on great real estate buys in Orlando and nearby suburbs,
contact the Orlando Property Group, your short sale and luxury home specialists.

Or Search Now for Real Estate & Homes in the Orlando Florida Area

 

Looking for specific information regarding Orlando Florida real estate prices and communities? Get Your Free Market Snapshot

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If you want to sell your Seminole County or Orlando area home in the next 6 to12 months, now is the time to begin putting your plan into place while time is still on your side. Please contact us for any real estate assistance you may need.

We're experts at putting people together with homes they love and can afford. Contact us today for information on Orlando and Seminole County real estate, Orlando & Seminole County homes for sale, Orlando & Seminole County relocation information, a free market analysis of your Orlando area or Seminole County home or statistics on homes in Orlando & Seminole County Florida or the surrounding Central Florida area, including Seminole County, Orange County, Lake County and Volusia County. We're always available to answer your questions.

 

 

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