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Sunday, April 7, 2019

Together – they spell HOUSE

An institution that dates back to 1828 – Merriam-Webster Dictionary offers a wealth of information.

I recently looked up two words in their dictionary – savings and plan. SAVINGS is “money put by” and PLAN is “a method for achieving an end”. And together, they spell HOUSE. OK, Merriam-Webster did not define that last part – I did. And, what I am hoping my readers take away with that is simple – a house (your home) is very much a PLANNED SAVINGS account – one might even call it a forced savings account.

Don’t let that last part scare you. Forced has a softer meaning if you apply simple logic. You need a roof over your head – yes? Typically there are two options – either a rented roof or your own. If you are a renter, you can look forward to rent increases and higher rents year after year. Once you become an owner with a fixed mortgage, you look forward to your principal remaining the same year after year and 30 years later, no more payments. Your very own SAVINGS PLAN.

How much can you afford to put into a savings plan?

If you have a great paying job and low expenses, perhaps a great deal. But, for most folks, saving is a challenge. Wouldn’t a monthly contribution to your savings be nice? Your monthly rent won’t do that. Paying your very own mortgage will. And, as your mortgage matures, more and more of your payment goes toward principal – your savings plan.

Some may challenge this reasoning and ask if you have to pay other expenses when you own? The answer is – of course. Taxes, insurance and maintenance. But look at the numbers a little more carefully. You get offsetting deductions. Property taxes are deductible. So are ALL those interest charges included in your mortgage payment. Both deductions lower your income tax. Think about that. Instead of paying more in taxes, you are offsetting expenses and putting more into your savings plan. Run it past your tax service and see what they have to say. Ask your banker.

Did you know, In many cities it is cheaper to OWN rather than RENT. But, let’s suppose it is just “close”. Suppose you pay $1300 in rent. You buy a starter home and target your payment at $1500 (maybe less). In a few years your rent will get there. A few years more and your rent will be – who knows? Income tax time changes because you have the benefit of some major deductions. You do not have those deductions when you rent.

If you would like to see “how much house” you can buy, use the mortgage payment calculator on my website. You may be very surprised! Best is to be realistic and buy what you can afford. If you wait to “save” more, consider it a loss. If house prices go up only 4% or 5% that increase is on the ENTIRE house value. A house that is $100,000 goes up $4000 - $5000. Can you save up that much extra – while you are paying your rent? Get in – be an owner. Get help finding a low down payment that is affordable and never ever lock yourself into a mortgage payment that you cannot afford.

By the way, those increases in home prices that I just mentioned…. If you OWN the house, those increases translate into VALUE and that value is automatically added to your SAVINGS PLAN! For sure, if you are paying rent, your landlord thanks you.

Finally – I often hear “what if I lose my job”. OK, suppose you are renting and you lose your job? If I am going to be blunt, it takes longer to throw you out of a house with your name on a mortgage than it does to get you out of a rental. And, if you ask for help early on – you might even be able to stay in the house and protect your SAVINGS PLAN.

I know this post was a bit longer than usual – but it is quite important and it is for YOU! Your opportunity to Live the American Dream. Your opportunity to have the security of your very one SAVINGS PLAN (spelled house).

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