There's a saying in the real estate business - buyers tend to purchase emotionally and justify it logically. However, this does not have to be true, especially since there are numerous financial benefits from home ownership.

Here is a laundry list of reasons why a home purchaser can feel confident that logic is in their favor:

1. In general, homes increase in value. In the Chicagoland area, homes have appreciated at an average rate of about seven percent a year in recent years (source: Chicago Tribune). While a fixed mortgage investment payment does not increase, the value of the home does increase - creating equity for the owner. By contrast, rent payments generally increase every year - with no benefits provided to the person paying rent.

2. Interest paid on your investment loan for your home is deductible from your gross income. How does this work? All mortgage interest, loan origination fees, points paid, and property taxes are deductible. For example, suppose you purchase a $300,000 home at a 6.5% interest rate. Your monthly payment would be around $1896 per month with about $1625 of that - interest. This $1625 a month or $19,500 per year is deductible from your gross income. In effect, with all the tax deductions taken into account in this example, your monthly payment will be $1175! . There is no similar tax benefit to paying rent - the money is just gone.

3. Real estate taxes are also deductible from your gross income. Deductible real estate taxes are any state, local, or foreign taxes on real property levied for the general public welfare. The taxes must be based on the assessed value of the real property and must be charged uniformly against all property under the jurisdiction of the taxing authority. Deductible real estate taxes generally do not include taxes charged for local benefits, trash and garbage pickup fees, transfer taxes, homeowners' association charges (condos) and rent increases to higher real estate taxes.

4. Any points paid as prepayment of interest are also deductible from your tax return. Other terms for points are loan origination fees and loan discount points.

As you can see, the hidden benefits of buying a home can really have a positive impact on the decision whether or not to purchase.

Please contact me if you need help deciding whether the time is right for you to invest in a new home.

Written by Jim Mcfarlane, real estate agent serving home purchasers and sellers in the City of Chicago and Northern suburbs.

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