Ask any homeowner and they will tell you that there are many reasons to buy a home. Here are five great financial reasons to buy using a VA loan rather as opposed to renting:
1. Lower Up Front Costs:
Believe it or not, the up front costs may actually be lower to buy a home using a VA loan than to rent. Renting requires a deposit and the first month?s rent to be paid up front. With a VA loan, certain closing costs are not allowed to be paid by you, the buyer. ?Couple that with no down payment requirement and possibly a seller credit and the upfront cost can be quite low, and on a rare occasion $0! ?Take a look at our video for more details.
2. Tax Savings:
Interest paid on your home mortgage is tax deductible. ?For example, a couple earning $100K per year combined purchasing a $475K home could save around $375/mo in taxes as a result of deducting the interest paid on their home loan. ?If a $475K home rents for about $2200/mo and the mortgage payment is about $2600, the tax savings alone almost make up the difference. ?Of course, your situation won?t be exactly the same and we encourage you to consult your tax advisor to see how buying a home will affect your tax situation.
Rents will increase with inflation, while your fixed rate mortgage payment will not. ?Over the past 50 years in Hawaii, rents have increased annually at a 6.1% pace. ?That means in 12 years your rent will double, but a mortgage payment will stay the same. ?This hurts you as a renter, but helps if you own and even more if you own an investment property.
Historically, over the past 50 years in HI, single family home prices have increased an average of 6.2% annually. ?Of course, this doesn?t mean that it is guaranteed to happen or that it will happen each and every year, but even with prices being flat over the past few years, the average increase over time has been pretty significant. ?Let?s look at the average annual returns of competing investments over the past 50 year time period:
- Average Savings Account Interest Rates: 5.1%
- Gold:7.3% (it has quadrupled in the last 9 years, it was 4% for the previous 50)
- Stock Market (DJIA): 5.7%
- So, excluding Gold?s recent acceleration, real estate in HI has the largest growth rate of all of these, but the power of leverage is what really sets it apart from the others. Read on…
This is the kicker, for all the competing investments, the growth rate is based only on what you can invest. ?Let?s say you have $5000 to invest, if you put it in a savings account earning the historical average of 5.1%, you will have $6412 after 5 years. ?If you use that $5K to buy a home, it?s not the $5000 that can increase in value, it is the whole value of the home! ?Let?s say it?s a $400K home, a 6.2% annual increase in value equates to a value $540,360 after 5 years. That?s a $140K increase in your net worth, much better than the $1400 you get from your savings account!
Of course, buying a home is a decision that should be made based on your own personal situation and expectations of the future. ?If you are interested in finding out more, please contact us.