If you’re a First Time Homebuyer or a current renter, you may not be entirely convinced that buying a home is cost effective for you. You may be aware that in addition to your monthly mortgage payments, you will most likely have monthly tax and insurance payments well. And before you know it, the cost of owning a home is a lot more than renting one! But fortunately, the federal government has set up generous tax laws to make homes more affordable for potential homeowners. Though you are required to pay property taxes on your home, these payments are deductible on your personal tax return. Additionally, the interest you pay on your mortgage is tax deductible. With these benefits, home ownership becomes much more affordable! Take a look at the below example which compares the likely housing payments on a $450,000 home, purchased with 10% down, with a rental payment.
Scenario assumes 90% financing on a $450,000 home with lender-paid PMI. 1st mortgage is a 30-yr fixed interest-only at 6.00%.
1Assumes 1.25% annual tax rate, and 0.22% annual insurance premium
2Your savings assume you will itemize your deductions on Schedule A. Savings will be less if your other itemized deductions (e.g. state income tax and other charitable contributions) are currently lower than your standard deduction.
Consult your tax advisor on all tax-related issues.