Tucson Realtor®: Crystal Harris ABR, GRI 

Homeownership may be one of the biggest and best investments a person will ever make in his or her lifetime. Many housing markets have experienced over 15% annual appreciation in recent years, due to a real estate boom, with record low mortgage interest rates. Typically in most markets, homes appreciate (5-7%) annually, when the housing markets are considered normal.

Most homebuyers use leverage to acquire a property. Leverage is a strategy an investor uses to purchase an asset by incurring debt. Example: Let's say that you purchase a home for $200,000. You then only put down 10%, or $20,000 instead of paying for the whole amount cash. The house appreciates 7% in the first year, which is $14,000 ($200,000 x 0.07). You just made a 70% (14,000/20,000) return on your initial investment of only $20,000.

Paying down a mortgage each month (forced savings) and owning an investment that appreciations yearly, will build personal wealth. Besides building equity (value), homeowners also have tax write-offs for mortgage interest and property taxes. Oftentimes, a mortgage payment will cost slightly more than a rental payment for like number of: (bedrooms, bathrooms, square footage, etc). 

The feeling of owning vs. renting a property is the "American Dream". Homeowners who make the property their primary residence for two out of the last five years, can be tax exempt on the capital gains from selling the property. The rule is that a single person can be tax exempt for capital gains up to $250,000, and up to $500,000 for a married couple.

There are several things to consider when buying a home. You are responsible for maintenance, repairs, as well as paying property taxes and home owners insurance. You will also pay Private Mortgage Insurance (PMI), if you put less than 20% down toward the price of your home at closing.

We can crunch some numbers to estimate how much your mortgage payment will be after including: (PMI, homeowners insurance and property taxes). We can also estimate your tax savings. You can use the mortgage calculator from this website to figure out your estimated amortized mortgage payments, but it won't factor in: (PMI, homeowners insurance and property taxes).

On a $200,000 house with a down payment of $20,000 (10%), for a 30 year fixed rate at 6%, will give you an amortized (level or constant payments including principle and interest) monthly mortgage payment of approximately $1079. P = (Pv x R) / [ 1 - (1 + R) ^ (-n) ]    P = (180,000 x (0.06/12)) / 1 - (1 + (0.06 / 12))^ (-360)

• Pv = Present Value (beginning value or amt. of loan)
• APR = Annual Percentage Rate (one year time period)
• R = Periodic Interest Rate (APR/ # of interest periods)
• P = Monthly payment
• n = # of interest periods for overall time period (i.e., periods per year x # of years)

We can estimate that if your property taxes are 1.20% in your area and your home is valued at $200,000, then your yearly total in property taxes will be $2,400 or $200 a month. Homeowners insurance will run you about $50 per month on a $200,000 home. Private Mortgage Insurance (because we factored only a 10% downpayment instead of 20%), will run you about $90 monthly on a $200,000 home. You are looking at around $340 extra + $1079 for the principal and interest part of the loan.

The tax savings for a person in the 25% tax bracket will be $2,700 or $225 a month. The calculation for the annual Interest on $180,000 mortgage is ($180,000 x 0.06 = $10,800) and a 25% tax break on the interest ( 0.25 x $10,800 = $2,700). If you take the $340 of extra minus the tax savings of $225 a month, then you end up paying an extra $115 a month. Spending an extra $115 on a mortgage payment is a small expense when considering the benefits of owning your own home.

There are many benefits for renting as well. Landlords take care of maintenance and repairs at no additional expense to you. Maybe you are looking for temporary housing because you just moved into an area, you're waiting for a home to be built, unsure where you want to buy a house, or you're not ready to make such a big financial commitment quite yet.

It is a good idea to have some cash reserves when considering making a home purchase.  Have at least 2-3 months of mortgage payments saved up, just in case a problem arises. 

For those who want to build personal wealth and seek financial freedom in the long term, this may be one of the greatest investments you will ever make.

Please contact me, so I can help you find your new home.

I look forward to helping you with all of your Tucson real estate needs!