You can't afford NOT to buy a home in the Austin area
Over the past ten years, the cost of rental housing in the U.S. has increased an average of 3 percent per year. That means an apartment or home renting for $1,000 a 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 would equal $137,567! Can you imagine having paid that much into a mortgage that might be earning 9% per year through appreciation?
Tax advantages of OWNING an Austin area home result in savings
None of that $137,567 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 save you money. Unlike your monthly rent, part of your monthly mortgage payment "comes back to you" in tax savings. Here's an example:
You purchase a home in the Austin area that costs $210,000. 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 6.5% (historical average) interest. Your monthly payments (not including insurance and possible HOA dues) are:
Monthly mortgage and tax payments
| Mortgage | $1,264 |
| Property Tax (at 1.25%) | $230 |
| Total Monthly Payment | $1,494 |
Tax savings per month (assuming a 30% tax bracket)
| Mortgage interest tax deduction | $322 |
| Tax deduction for property tax | $68 |
| Total Monthly Tax Savings | $390 |
| Total Monthly Cost After Tax Savings | $1,104 |
You actually save $390 a month by owning your own home. On a yearly basis, the savings is even more dramatic:
Total annual costs
| | Homeowner | Renter |
| Annual mortgage/rental payment | $15,168 | $12,000 |
| Real estate taxes | $2,760 | $0 |
| Mortgage interest tax deduction | -$3,864 | $0 |
| Tax deduction for property tax | -$816 | $0 |
| Mortgage principle accumulation | -$2,232 | $0 |
| Appreciation* | -$6,300 | $0 |
Total Annual Cost | $4,716 | $12,000 |
*Based on 3% annual appreciation. Over the past ten years, Austin has had many instances of average appreciation well over 3%. The 3% usued in this example is very conservative.
Homeownership builds wealth for households in the Austin area
The Federal Reserve Board estimates that homeowners have a net worth almost 36 times more than that of renters. In 2004, the median net worth for homeowners was $184,400 compared to $4,000 for renters. How do you build up your net worth? Through those "appreciating returns" on your home.
At 5% annual appreciation, you can expect your home, that is valued at $210,000, to be worth $325,779 in ten years! Keep in mind that some areas of Austin are far exceeding 5% per year. In addition, you are paying down the principle on your mortgage. Remember that $200,000 you borrowed at 6.5% over 30 years? That debt amount is decreasing every month and every year. Let's look at that same home price and mortgage debt expecting only 4.5% in annual appreciation. That's even less than the 5% that we had been using!
Year | Home Price | Mortgage Debt | Net Worth |
1 | $210,000 | $200,000 | $10,000 |
2 | $219,450 | $197,765 | $21,685 |
3 | $229,450 | $195,379 | $33,946 |
4 | $239,645 | $192,834 | $46,810 |
5 | $250,429 | $190,119 | $60,310 |
6 | $261,698 | $187,222 | $74,476 |
7 | $273,475 | $184,131 | $89,344 |
8 | $285,781 | $180,832 | $104,948 |
9 | $298,641 | $177,313 | $121,328 |
10 | $312,080 | $173,559 | $138,521 |
After the first year, you know only owe $197,765 on a home that is worth $219,450! You have "netted" a $9,450 increase in the value of your home, plus $2,235 a year that previously you owed as part of your mortgage 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 your Austin area home appreciates and you continue to pay down your mortgage debt, you increase your own net worth!
Homeownership in Austin - It's NOT just about the money
The "numbers tell the story" should help ease your mind about the financial aspects of becoming a home owner. But there are other, less monetary, benefits to homeownership. Several research studies indicate 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 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 make that first step of deciding "I'm ready to be a homeowner." REALTORS assisted many of those more than 71 million homeowners in both their decision to buy and their first home purchase. We are professional Realtors and we are members of the National Association of Realtors, so we abide by the association's strict Code of Ethics and Standards of Practice. We can help guide you to first-time homebuyer programs in your area, as well as assist you in searching for and buying your dream home in Austin. Contact us for more information about buying your first home in Austin.
