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What is the Real Bottom Line?

June 16, 2011 by Ann McLaurin

An important part of buying a house is sitting down with your mortgage lender to get a clear idea of how much you can afford, prior to your beginning your home search. Your income, savings, and monthly expenses play an important role in determining how large a mortgage you can afford. Your lender will add up all of your monthly expenses, the mortgage payment, insurance, real estate taxes, homeowners or condo association fees. The grand total may astonish you!

The important thing to remember is that the grand total isn't really the bottom line. In many cases, the amount of money a renter spends on rent can be about the same as or less than the amount a homeowner spends on a mortgage. With the tax benefit for homeowners, the savings can be significant. When you add your tax savings to the equation, you may be pleasantly surprised.

During the early years of your loan, almost all of the mortgage can be deducted from your state and federal income tax. The same is true of your real estate taxes. If you use part of your house as a home office, you may be able to qualify for additional tax savings. When you make calculations about the monthly costs that include the tax savings, owning your own home may be less expensive than renting a house or apartment of comparable size. The Ginnie Mae chart below shows a cost comparison for a renter and a homeowner over a seven year period.

• The renter starts out paying $800 per month with annual increases of 5%
• The homeowner purchases a home for $110,000 and pays a monthly mortgage of $1,000
• After 6 years, the homeowner's payment is lower than the renter's monthly payment
• With the tax savings of homeownership, the homeowner's payment is less than the rental payment after 3 years