Friday, January 31, 2014

Go With Your Gut

Buying a house is just like any other important decision you'll make in your life. Yes, it's important to do the research, and it's important to explore your options, but at the end of the day, the most important thing is to go with your gut. When you find the right house for you, you'll know it. Don't hesitate. Think about it this way: when you found the right man or woman for you, did you say, "I think you're the right one, but I'd like to go date 10 more guys just to make sure"? Do you think he'd wait around if you did? I think not. 

The past few days that I've spent with my current clients have reminded me a lot of my own home-buying experience. Just as I had, they spent months looking at properties online in all different areas, planning where they would buy, when they buy, and what they would buy. They had their must-have lists, their budgets, and their timeline. And then... an opportunity presented itself. They had to react quickly or risk losing the "dream home". They may have had to scramble at times to get things together, but they did it. Everything fell into place. They didn't hesitate. And they made the right decision. Some might even say it was "meant to be".

My husband and I bought our current home before I became a real estate agent, but my passion for this industry was already there. We were saving up to make the leap from townhouse to single family, and at that time, we felt like we had a good 8-12 months left of savings to go before we would be "ready". However, I was still spending hours online researching and looking at listings. I was careful not to look at anything above my price range, for fear I would fall in love with something I couldn't afford, but I guess I never thought about what would happen if I fell in love with something I could afford. Well... I found out. 

One day I came across a listing I hadn't seen before. The house had been on the market, but the price was just reduced and now fell within my search parameters. It was perfect. (Or at least as perfect as it gets when you have a budget!) It had everything we were looking for and more. It needed a few updates but nothing substantial, and we aren't afraid of renovations. I drooled over the pictures for a few minutes and then moved on to something else. Problem was, for the next couple days, I couldn't stop thinking about it. Finally, I decided to show my husband. He thought it looked nice but couldn't understand why I was showing it to him because we weren't ready to buy for another year. (If you were to ask him about it now, he may say that this is where I started to "brain-ninja" him.) So I asked him, "how do you know we're not ready?" Of course, in an ideal world, we would have had more money saved up, but that didn't mean we couldn't, right? 

Well, after a call to our mortgage broker, who told us we could do it, I convinced my husband that we should just go see it. He agreed and so did our wonderful agent (aka: my mother-in-law!) I knew before we even got there that it was the one, but of course I had to be sure. We saw a few houses before we toured "the one", and nothing impressed us. When we got there, we both loved it. We said we'd go home and talk about. Well, being the wonderful agent she is, my mother-in-law called the listing agent to let him know we may be interested. That's when we found out there was another offer on the table. Well, no more time to think about it. We had to act fast. We put in our best offer, and we got the house. I haven't regretted it for a second. 

Even with the hundreds, if not thousands, of houses I've looked at online or in person since then, I have yet to find a house that I would choose over my own. So I know I made the right decision. I'm confident my clients will feel the same way after they've been in their new home for 2 years also.

Well, all this reminiscing is nice, but I must have a point, right? Of course I do. While I would never recommend that my clients buy a house before they are ready (both financially and emotionally), sometimes things just fall into place for a reason. (New regulations make it nearly impossible to buy if you're not financially ready anyway.) If it's right, it's right. If it's meant to be, you'll find a way to make it happen. When your gut says "this is the house for me", listen to it and don't look back.

Friday, January 17, 2014

One Benefit of Buying vs. Renting

It's that time of year again. You go out to the mailbox to pick up your mail, and what do you find? That lovely W2, which tells you how much (or little!) you earned this year. That can only mean one thing: it's tax season. Tired of cutting a check to the IRS every year? Buying a home can help with that. 

Of course, I'm not saying that buying a home will ease all of your tax woes, but there are tax benefits to home-ownership that can lessen the burden. The biggest benefit is that you are able to deduct the interest you pay on your mortgage (which I will explain in detail below), but you can also deduct the Real Estate taxes you pay each year. These things can easily become the difference between writing a check to the IRS and cashing a check from the IRS.

There are a few things that are important to understand here. First of all, the interest on your mortgage is amortized in your payments throughout the life of the loan (often 30 years). You pay the majority of the interest in the beginning of the loan. So, here's an example: Let's say your mortgage is $400,000 with an interest rate of 4% for a 30-year fixed loan. Based on those numbers, your payment would be approximately $1,900 per month (this is assuming there is nothing else included in your payments, such as mortgage insurance, taxes, etc.) In your first payment, about $1,325 of that $1,900 would be applied toward interest and only $575 would be applied to the principal of the loan. Those numbers gradually change over the life of the loan. So, in year 15 of the loan for example, you would pay about $850 toward interest and $1,050 toward principal. 

Ok... so... what does this have to do with taxes? Well, you can deduct A LOT of interest from your taxes, especially in the first 10 years or so of the loan when money is often the tightest for people. Just take that example above. That person will be able to deduct over $15,000 of interest in the first year. Like I said... A LOT!

However, it's even more important to understand what a deduction means. It does NOT mean that this person is going to get $15,000 back from the IRS or that they owe $15,000 less in taxes. It means that they will be able to deduct $15,000 from their taxable income. So, that's $15,000 less that they will be taxed on. For instance, let's say that the person in the example above makes $75,000. (To make this example easier, let's just assume that the $75,000 is after all other deductions, withholding's, etc.) They will be able to subtract that $15,000 from their income to make their Adjusted Gross Income (AGI or taxable income) $60,000. So, instead of being taxed on $75,000, they will only be taxed on $60,000 of their earnings. Depending on the other factors involved (and yes, there are MANY other factors involved), this may mean that our example person is going to get a couple hundred or even a couple thousand dollars back from the IRS, instead of having to pay more or breaking even.

Ok, so now that I've got your head spinning, I'll wrap this up. The point is, this is just one of the many benefits to buying a home that you cannot get when renting. Maybe your rent payment is only $1,500 a month and paying that extra $400 a month for your own place seems daunting. This is one benefit that can make that stretch a little more attainable.

DISCLAIMER: I am not a tax expert or a mortgage expert. The numbers used in the examples are simply estimates, and everyone's situation varies when it comes to taxes. If you'd like to know more about how buying a home can benefit your tax situation, please consult your tax professional. For more information about these deductions, here is a link to the IRS website: