Two of the biggest reasons to buy a home vs. rent a home are the tax deduction benefits and mortgage principle pay down benefits of home ownership. 3.5% down FHA home loans can be the best way for many to accomplish home ownership and enjoy these two benefits.
First I will talk about the tax benefits of home ownership. The tax code in the United States allows home owners to deduct the mortgage interest and property taxes from their income. So let’s say for example you buy a $350,000 house with a 3.5% down FHA loan mortgage loan. In this case you will have a deduction at the end of the year of $17,050 in mortgage interest and $3,937 in property taxes for a total tax deduction of $20,987. And let’s say you pay 35% of your income in taxes. This means that with a $20,987 deduction you would be saving $7,345 per year with buying a home vs. renting, or $612 per month. So you could have a house payment of $612 more than your rent and you would be about even given the tax deduction available when you buy. You do not get any tax advantages or special write-offs when you rent.
Next let’s talk about loan principle pay down. When you get a FHA loan to buy a home, you are getting a 30 year fixed fully amortizing mortgage. What “fully amortizing” means is that every month a portion of your payment goes to interest and principle. So let’s use the same example above with a $350,000 house purchase with a FHA home loan and let’s assume your interest rate is 4.75%. Every month you make a payment on your FHA loan mortgage you would be paying roughly $450 towards principle. And every month as go into your 30 year FHA loan mortgage you pay a little bit more towards principle. So after one year you will have paid $5,263 of the FHA loan balance down. After 5 years $29,000 and after 10 years $65,700 and so on and so forth.
The point here is when you buy vs. rent, every month you are making progress on paying your loan balance off to eventually own the home free & clear with NO mortgage payment at all. When you rent you are not paying any balance down, 100% of your rent goes to pay your landlords mortgage off. You will never own your home free and clear with no mortgage payment by renting.
So when on a $350,000 house purchase when you combine $612 in tax savings per month with $450 in FHA loan mortgage balance pay down per month, that amounts to a $1,062/mo advantage over renting. This is how a home buyer can build wealth with buying vs. renting.
Don’t hesitate to give us a call at 858-922-7899 or email if you would like to be approved for a FHA loan mortgage.
Here are some of the very latest up-to-date benefits of FHA loans in California:
- FHA loan requirements only require three years to pass after a foreclosure to qualify for a FHA loan, conventional loans require seven years
- FHA loan limits in many counties in cities such as San Francisco, San Jose, Los Angeles, Orange County and San Diego allow FHA loans up to $729,750
- FHA loan credit score does not have to be perfect, give us a call and we can help you analyze your credit
- FHA loan interest rates are still near 60 year lows
Regards,
Rob Chomentowski
Sr. Loan Officer (and FHA, VA, conventional, Homepath specialist)
858-922-7899
homeloan8@gmail.com
Related posts:
- Magic of Principle Pay Down FHA Loans California
- Property Tax Impounds When Get FHA Home Loan In California
- Should I Pay my Credit Card Debt with a Home Equity Loan
- State of CA Extends & Enhances $10,000 Home Buyer Tax Credit – Great For Those Getting FHA Loans In California
- US Congress Backs Home Tax Credit Extension
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