By: Kyle Spearin
Envision yourself buying the home of your dreams.
On closing day, you sign all the papers with a smile on your face and then make your way to the property. When you reach the front door, your realtor hands you the keys and says “it’s yours.” As soon as this happens, you begin posting pictures on social
media and start sending out housewarming invitations.
These are the joys of home ownership.
Once you get to the finish line of the home buying process, you’ll look back and remember it as a life-changing event. Even so, many potential buyers are hesitant. It could be that they don’t have enough for a down payment. Perhaps they aren’t sure how
to maintain a house or like renting.
Beyond these doubts, there are a plethora of reasons to buy a house. Whether you’re concerned for monetary reasons or lifestyle accommodations, buying a house in El Paso has many advantages.
Buying a Home Overview
Home ownership in many ways is a symbol of progress in American society. It tends to be a natural step after renting, however it’s not always the case. To truly know if home ownership is right for you, keep reading and let the numbers do the talking.
Comparing the Costs of Renting and Buying
The primary argument against home ownership is that it’s “too expensive.” In actuality, buying a home in El Paso could save you money in the long term.
Coming up with a down payment tends to be the biggest barrier to entry for home buyers. It’s a large chunk of money to save and then part with to get a house. A common misconception people who hesitate to buy houses have is that you need to put 20
percent down. The average home price in El Paso is $141,955, which means that according to this belief a potential home buyer would need $28,391 as a down payment.
Lucky for you, the true price of a down payment is far less.
Depending on your pre-approval, you may be able to put as little as 3.5 percent down using an FHA loan.
This is a game-changer. Instead of coming up with tens of thousands of dollars, you would only need to come up with $4,968 for the same home described above. With such a low point of entry, you need to strongly consider this option.
But what if renting is still cheaper?
There’s no denying that rent in El Paso is cheap in comparison to other parts of the country. As of February 2020, the average rent for an apartment in El Paso is about $790 per month. If your landlord requires first, last, and a security deposit, that means you would need to
come up with $2,370 to move in. For slightly more than double, you could own a house and receive additional benefits that tenants don’t receive.
Equity and Loan Paydown
Each month that you pay your mortgage, something almost magical happens. At the start of your loan, most money goes towards paying the interest you owe, but as time goes on more and more of your mortgage payment goes towards the principal. As you
continue to pay down your loan, you’re adding to your net worth.
In part, loan payoff is how you build equity over time. Equity is essentially how much of the house you own, so as more of the house is paid off you own more of it. Let’s say that you bought a house for $141,955 in El Paso. Since you put 3.5 percent
down, you start with $4,968 in equity and owe $136,987. This can serve as leverage for future investments or simply help reduce the amount you owe over time.
Another way to build equity is through appreciation.
Appreciation is another major benefit to home ownership. Although not always the case, real estate has traditionally appreciated (gained value) over time. Some years it might be less, some years it might be more. Zillow predicts that home values in El Paso will rise 4.2 percent within the next year.
Examples are a good way to illustrate the power of appreciation. Pretend that you bought a house for $141,955 and your house appreciated by 4.2% in year 1. This means that your house would be worth $147,918.79, which is $5963.79 more than when you
bought it. Without doing anything, a house can make you money when it appreciates.
There’s also something called forced appreciation. In order to benefit from this, renovation is typically involved. This could be redoing a kitchen or a bathroom, adding a bedroom, painting or a variety of other things. Regardless of the market conditions, forced appreciation can help increase
the resale value of your home.
Appreciation is not a guarantee, but it’s a great added consideration.
When a property is considered your primary residence, there are numerous tax benefits. Before making any final decisions, be sure to consult with a CPA because tax law is constantly changing. With that in mind, home ownership can help you in ways
that renting can’t.
A major consideration is when you sell in the future. If you occupy your home for 2 of 5 years (they don’t have to be consecutive), you may benefit from capital gains exemptions. This means that if you made money from appreciation or other considerations, you would
only have to pay after a certain amount.
When filing your taxes on a yearly basis, there are also benefits. You can deduct mortgage interest, property taxes and other expenses up to specific limits if you itemize deductions on your tax return.
There are many reasons to buy a house in El Paso. Home ownership is financially savvy in comparison to rent and comes with several added benefits. Be sure to do your research to see if this is the right choice for you.