There are many reasons a California Veteran should by a home. Property values in California have fully recovered in most counties compared to values in 2008 after the “mortgage meltdown”. Mortgage underwriting standards are now much stricter than they were prior to the crash, which has helped to stabilize the real estate market., Homebuyers are still optimistic about searching for and purchasing a home. Home prices have experienced nice appreciation rates over the past few years are expected to continue that trend in 2018.There are many reasons that it makes financial sense, especially for California Veterans, to purchase a home now. Here are a few of those reasons:
A home is one of the best leveraged investments currently available
When purchasing a home, the purchaser stands to potentially make significant gains on their investment. For example, say a borrower pays a 20% down payment on a $400,000 home. That is $80,000 down payment. If the value of the home they purchased rises 10% to a value of $440,000, they will have realized a 50% return on their initial investment. For every percentage point the value rises the borrower gets a 5% return on investment. If a mortgage has a smaller down payment, then the increase in ROI is even greater. In the case of a California Veteran that uses the VA program where no down payment is required, a rise in value would mean an exponentially immeasurable increase in ROI. It is, of course, important to also compare the total mortgage payment to a comparable rent payment and make sure the mortgage payment fits your budget.
Whether you own or rent, you are still paying for housing
In either case, you are likely paying someone’s mortgage principal. When renting you are paying the landlords principal plus a rate of return to help cover their costs. When owning, you will be paying your own principal and moving towards paying off your mortgage. You also get much more favorable tax treatment when owning your home.
Owning is a form of “forced savings”
Many individuals will delay saving money for the future due to current debt and current costs. Owning a home acts as a storage of value and can serve as a long-term asset. When purchasing a home with a mortgage, you have to pay into your home by paying off your mortgage. This is a forced savings since the money you paid to close out your mortgage is stored in the long-term value of your home.
There are significant tax benefits to owning
Compared to renting, there are many more tax-related benefits if you own your home. When you own your home, you are able to deduct property taxes and mortgage interest from your income. Of course, it is always important to consult with your CPA or tax preparer to see if there will be a tax benefit for you or not. Recent tax changes may have reduced or eliminated the tax benefit of owning a home at certain price ranges. Every situation is different.
Owning your home is a hedge against potential inflation
For potential homeowners with a fixed rate mortgage, their housing costs could be essentially fixed with only utility costs, insurance, and property taxes changing over time. When renting a home, rents and related costs will change over time with higher rates of inflation. The potential for future inflation provides homeowners with an attractive possibility for future savings. And in California, because of Proposition 13 (passed in 1978), property taxes are severely limited to increasing in step with inflation. Proposition 13 only allows the county to increase your properties assessed value by a maximum of 2% per year. Since 2000, the average annualized property appreciation rate in California is 5.03%. (from 1st Quarter 2000 through 3 Quarter 2017 – source https://www.neighborhoodscout.com/ca/real-estate ) That even takes into account the downturn in 2008. Somebody who bought a home in 2000 for $300,000 is now sitting on a home valued at $708,120. But their property tax bill is not based on the estimated value of $708,120. Because of Proposition 13, the assessed value would only be $420,000. Since the property tax bill is based on the assessed value, this works as a great hedge against inflation. The base annual property tax bill would be 1% of $420,000, or $4,200. But if someone new move into the neighborhood and buy a home valued at $708,000, their base property tax bill would be $7,080. The sooner you buy a home the better. Lock in that payment before property values go higher.
It is very important to make sure you have a clear understanding of the numbers involved in purchasing a home with VA financing. You want to make sure you know your budget so that after you buy a home you are still able to save for retirement and go out to dinner now and then. To understand the numbers, call a California VA loan officer prior to shopping for a home.This should always be your first step. Similar to shopping for a car, you need to know what payment you can afford and what that payment equates to in purchase price. Your California VA Loan Officer will be able to quickly assess your situation and prepare custom VA loan scenarios for you.
Authored by Tim Storm, a California VA Loan Officer specializing in VA Loans. MLO 223456. – Please contact my office at the Home Point Financial. My direct line is 949-640-3102. www.CaliforniaVALoanExpert.com. I will prepare custom VA loan scenarios which will be matched up to your financial goals, both long and short-term. I also prepare a Video Explanation of your scenarios so that you are able to fully understand the numbers BEFORE you have started the loan process.