.

.

  That's a fairly decent rate of return for a conservative investment, but it is not the whole story. Your "return on investment" is much higher than four to six percent.  This is partly because you are "leveraging" your investment and because the tax laws subsidize home purchasing.

  For example, if you buy a $200,000 home and put twenty percent down, that means your investment if $40,000.  If you house goes up five percent in value, that is $10,000.  Your $40,000 investment grew by 25%, and is now worth $50,000. 

  If you have good credit, though, you can buy a house with only three percent down - or less.

  Of course, you're making payments on the loan (most of which is interest) and you're paying property taxes.  However, our tax laws allow you to reduce your taxable income by whatever you pay in interest and property taxes.  Depending on your tax bracket, that lops a bit off the top of your carrying costs.

  If you put less than twenty percent down, you will also be paying mortgage insurance, which is not deductible.  Most lenders will allow you to get a higher interest rate in lieu of mortgage insurance.  Even so, you can always refinance once your house appreciates - just pick a time with low rates and be sure the refinance makes financial sense.

  Besides, if you didn't "own" your home, you would be paying rent, anyway.  Rent goes up every year.  Even if you have an adjustable rate, your mortgage payments will remain fairly stable and within a given range.  If you stay in the same home for some time (without refinancing and taking equity out of your home), your mortgage payments will definitely become lower than someone renting a comparable home.

  Home ownership is the number one wealth builder in the United States.  Sure, you need a 401K or a retirement plan, but you need the house more.  Later, when your house payments are a more manageable part of your monthly income, start socking more money away in retirement programs. 

  First, buy the house.  If you already have a 401K, borrow from it to come up with your down payment.

  But buy the house.

.

.© copyright December 2002 by RealEstate ABC