You may be thinking that it is time to move out of that rental you’ve been in for a few years and venture into the world of homeownership. Or you are moving to a new city and are considering renting a place before buying.
Home ownership is an important decision, and a long-term investment which can help you build financial stability over time. If you are planning to stay in one location for more than two or three years, buying a home may be the best plan of action. Attorney Mortgage can help you determine if home ownership is right for you.
Monthly Cost Stability
“When you own a home, your housing costs are typically more stable than when renting, as your mortgage payments will remain the same for the life of the loan,” says Paul Miller, Managing Partner and CPA of Miller & Co.,LLP. “In contrast, rent prices can increase annually and are subject to market fluctuations.”
[Source: Paul Miller]
The National Association of Realtors® (NAR) reports that 2022 national median single family home prices increased 4% from the preceding year. In contrast, single-family rental prices rose 11.5% from the last year. According to NAR, single-family rents in Miami increased an astounding 33%, with Phoenix and Las Vegas in second and third place with rent increases of 19.4% and 16.7%, respectively.
When you buy a home, your fixed-rate mortgage payment with principal and interest remains the same over the time period of the loan, which can bring relief when you are just beginning a new practice. When you rent a home, your payments may increase depending on the market.
Unlike rent, your mortgage payment is working for you. Attorney Mortgage could help you:
- Build long-term wealth through home ownership, as the home is likely to increase in value.
- Make a profit when you are ready to sell the home in the future.
- Borrow against the equity value of a home, giving you more financial flexibility.
The Tax Benefits
“While tax laws have changed, there are still many reasons why purchasing a home can be a good investment,” says Miller. “When you own a home, you are building equity, which is the difference between the value of the property and the amount you owe on the mortgage. Over time, as you pay down the mortgage and the value of the property increases, your equity in the home will grow.”
From a tax standpoint, Miller explains that there are a number of benefits to buying a home versus renting:
- Mortgage interest deduction: Homeowners can deduct the interest paid on their mortgage from their taxable income. This can result in significant tax savings, especially in the early years of the mortgage when interest payments are highest.”
- Property tax deduction: Homeowners can also deduct property taxes paid on their home from their taxable income, which can reduce the amount of income that is subject to taxation.
- Capital gains exclusion: When a homeowner sells their primary residence, they can exclude up to $250,000 ($500,000 for married couples) of capital gains from their taxable income if they have owned and used the home as their primary residence for at least two out of the previous five years.
- Tax-deferred savings: Homeowners can use a home equity line of credit or home equity loan to borrow against the equity in their home, and the interest on these loans may be tax-deductible.
“Renters, on the other hand, typically do not receive any tax benefits related to their housing expenses,” says Miller. “However, it’s important to note that buying a home also comes with significant financial responsibilities, including property taxes, maintenance costs, and potential decreases in home value, which can offset the tax benefits,” says Miller. “Ultimately, whether buying or renting is better for someone depends on their individual financial situation and goals.”
New Grads and Homeownership
Are you a newly graduated attorney, with school-related debt? Don’t assume you cannot qualify for a home loan. Attorney Mortgage has a special loan program just for attorneys that require no money down and no PMI (Private Mortgage Insurance). If you are a first-time home buyer, you may qualify for special programs. Attorney Mortgage offers that personal service to you, if you are an attorney or a professional in another industry.
There are some steps you can take now, while preparing to buy a new home:
- Work to improve your credit score. “A higher credit score can make it easier to qualify for a mortgage and can also result in lower interest rates,” says Miller. “Graduates with student loan debt should make sure they are making on-time payments on their student loans and credit cards to improve their credit score.”
- Pay off high-interest debt: Graduates should focus on paying off high-interest debt, such as credit card debt, to improve their debt-to-income ratio, which is an important factor in the mortgage approval process.
- Determine how much you can afford: Before you start house hunting, it’s important to determine how much you can afford to spend on a home. This will help you narrow down your options and ensure you don’t fall in love with a property that is beyond your budget. Attorney Mortgage is here to help you through that process, so you can find the home of your dreams.
- Save for a down payment: Graduates should begin to save as much as possible for a down payment on a home. While a 20% down payment is ideal, many lenders offer mortgages with smaller down payments, such as 3.5% or 5%. Attorney Mortgage offers a mortgage program specifically for attorneys with no down payment and no mortgage insurance, but the best plan of action is to implement a savings plan for the future.
File Under “Home Owner”
Before you begin the search for a new home, Miller says that there is paperwork to consider before, during, and after the purchase.
Determine whether you need a pre-qualification letter or a pre-approval letter before you start looking for homes. Gather information that is necessary to complete this process, such as tax records and other financial statements. Learn more about the pre-approval process.
Once you have found the right home, you will have more paperwork:
- Purchase agreement: This is a legal contract that outlines the terms and conditions of the home purchase, including the price, closing date, and any contingencies.
- Home inspection report: This report outlines the condition of the property and any issues that need to be addressed before the sale is final.
- Title report: This document provides information on the property’s ownership history and any liens or encumbrances on the property.
Contact Attorney Mortgage to learn more about the loan process and required paperwork. When your loan is approved, you will receive:
- A closing disclosure statement, which outlines the final terms of the loan. The closing disclosure will include the interest rate, your closing costs, and your monthly payments.
- A homeowner’s insurance policy protects you against losses or damage to the home, property, and the home’s contents once you close on your home.
- A closing statement will offer a detailed breakdown of all costs that are associated with the home purchase, such as closing costs, title fees, and any other expenses.
- A Title insurance policy protects you against any issues with the title that were not discovered during the title search.
- You will also receive a deed, a legal document that transfers ownership of the home to you.
All paperwork related to your new purchase, including title policy and mortgage documents, should be kept organized and retained in a safe place to make your tax preparation process smoother.
If you are a newly degreed attorney, an established attorney looking for a home, or if you are ready to re-finance your home, Attorney Mortgage can help you navigate the loan process. Contact us or call (816) 860-1686.
Ready to find out more?
If you are a newly degreed attorney, an established attorney looking for a first home, or if you are ready to re-finance your home, Attorney Mortgage can help you navigate the loan process. Contact us or call (816) 860-1686.