Sense and Cents About Buying a New Home
A house provides more than just shelter for your family. It provides a place to eat, sleep, relax and entertain your friends. Most people spend more than half of their leisure time at home. That’s why it makes sense to buy a quality new home. Buying a new home also makes good financial sense.
With most mortgages, you gradually increase the proportion of the house you own while decreasing the amount you owe. As your equity builds, your personal wealth increases. You also benefit from a process known as “leveraging.” Assume you buy a $100,000 home with a $10,000 down payment and a $90,000 loan. If your home’s value increases to $110,000, your mortgage payments plus your home’s greater value increases your equity to more than $20,000 ($10,000 down payment and $10,000 in appreciation, plus the amount paid on your loan). Therefore, you would have more than doubled the original amount that you originally invested in your house. What other investment allows you to earn so much so quickly? Tax laws have changed considerably in recent years, but your home is still one of the best tax shelters for your income. You can deduct the mortgage interest and property taxes from your federal and state income tax returns. For example, if you are in the 28 percent bracket, you are receiving the equivalent of a 28-percent discount on your mortgage interest and property tax payments. If you deposit money in a savings account, you must pay taxes every year on the interest. With a house, you don’t pay taxes on the appreciation until you sell and buy a lower priced home or move into a rental unit.
Ten years ago, tax laws permitted a one-time exemption of $125,000 of appreciation on your principal residence after you turn 55. Today, a person of any age is exempt from up to $250,000 ($500,000 if married) in capital gains, provided that the house is owner-occupied for at least two of the five years prior to its sale. If you want to tap the equity in your home when you are approaching or passed retirement age, this provision allows you to capitalize on your investment without a big tax payment. Today’s new homes offer unparalleled options and comfort. They include the most advanced products and technology and are designed to fit the needs of today’s buyers. For example, homes built today are as much as 50 percent more energy-efficient than homes built before the 1970s.
Extra insulation, efficient heating and cooling systems, double-glazed windows and insulated doors are just a few of the standard energy-efficient features built into new housing. These improvements alone can save you hundreds of dollars a year on utility bills. From the equity you build, the tax dollars you save and the comforts you enjoy, buying a new home is one of the smartest investments you will make.