HHHunt understands that many make a decision to buy a house partially because of lifestyle issues having a yard for a pet or more space to spread out are important quality of life considerations. However, homeownership solely for the sake of building personal wealth is not necessarily a sound decision.

Below are several myths about homeownership and the contrasting reality.

Myth #1 — Purchasing a home will provide a huge tax break.

The Reality Tax advantages for many homeowners may not exist and in some cases may be nominal. Consider the following:

The standard deduction in 2014 for a married couple filing jointly is $12,400, for a single individual is $5,950, and for the head of household it is $8,700. As a homeowner, if your mortgage interest and other itemized deductions do not add up to the standard deduction amount, you will experience no tax advantage. As a renter you are still eligible to receive the standard deduction and would not have to incur expenses such as mortgage interest and property taxes.

A tax deduction is used to reduce your taxable income but only a portion of the deduction is realized as true savings typically 25% to 28% based on your tax bracket. For example, consider a married couple with $13,000 in total deductions. The only advantage you would have over a renter who paid zero in interest and property taxes is an extra $600 in deductions. If youre in the 25% tax bracket, that extra $600 in deductible interest is worth just $150.

Perceived tax advantages become negligible once you consider all of the additional expenses homeowners incur each year:

Private Mortgage Insurance (PMI) When you purchase a mortgage you are required to pay PMI to insure the loan for the lender, and this expense typically ranges between $150 — $200. The law allows for PMI to be charged until the borrower has paid off at least 20% of the house. The law also allows lenders to require this insurance until 50% equity has been established by high-risk borrowers that include those that have marginal credit, higher debt to earning ratios, and those who provide less proof of income during the approval process.

Maintenance Expenses A major advantage of renting includes no expenses. To maintain the high standard of quality at our communities, HHHUNT spends on average approximately $900 per apartment home each year 1. As a homeowner, you can expect to spend around 1% of the purchase price per year on home maintenance. For a $200,000 house, that equates to $2000 per year.

Property taxes, homeowners association dues, landscaping costs, gym memberships, pool memberships, upfront costs for home furnishings and appliances, and higher utility costs are additional expenses homeowners experience each year that renters will be able to avoid. These additional costs totaled will quickly surpass the amount of cash you receive from your tax break.

Myth #2 — Paying rent is throwing away money especially when a mortgage is less expensive.

The Reality There are benefits to home ownership for some people, however there are certain situations when renting is financially beneficial. Additionally, many online Rent vs. Buy calculators that promote home ownership and show the financial advantages of buying versus renting are flawed and misleading. Consider the following:

According to a report generated by Mark Obrinksky, NMHC Chief Economist, on January 25, 2005, Calculating the full cost of ownership is complicated, and online calculators that sacrifice accuracy for ease-of-use mislead consumers and perpetuate the myths about homeownership. 2

Mark Obrinsky also found that calculators mistakenly assume everyone will receive a tax incentive from their home purchase. In fact, only half of all owners realize a tax advantage based upon itemizing their deductions 3. Many calculators also contain flaws that do not account for maintenance costs, insurance and taxes, and other homeownership costs See The Reality of Myth #1.

Advantages of homeownership may be realized by those who:

1. Plan to stay put for at least 7 years

2. Are prepared to deal with noisy neighbors and maintenance issues on their own

3. Have extra savings, and are out of credit card debt

4. Understand the importance of managing their money monitoring their expenses and income to ensure positive personal cash flow. 4

5. Understand that buying a home is not necessarily an investment but a lifestyle choice

Myth #3 — No more rent increases!

The Reality It is true with a fixed mortgage rate your actual mortgage payment itself will stay constant, but you may experience increases in property taxes and insurance. While rent increases do occur, you may find they are less than the other rising costs of home ownership. Consider the following statistics:

Since 1981 property taxes have increased 55% (in 2004 dollars) according to the US Census Bureau.

Homeowners insurance rose 9.1% in 2004 and 4.8% in 2005 according to a study by the National Association of Insurance.

Myth #4 — Buying a home is a great investment.

The Reality Homeownership may not be the best place to get a strong return, especially if you look at the average home price appreciation of other assets. Putting all of your money in a house is like putting all your wealth in a single stock in the stock market. Its a risky financial strategy. Consider this:

The S&P has averaged 11.92% since its inception in 1950 while home prices have barely kept up with inflation and have averaged between 2% and 3% per year.

When you buy or sell a home with the assistance of an agent you immediately lose out and gain a limited return on your investment. Standard commission fees for a licensed real estate agent range between 2.4% and 3% per agent. Considering the national median home price for all housing types in the 4th quarter of 2007 was $206,200 the initial expense just for real estate commissions could be as high as $12,372 when both a sellers and buyers agent are involved.

With the recent challenges in the housing market many areas have limited or negative growth in the value of homes, especially existing homes.

Even when there is appreciation, in many cases this appreciation is negated by the costs of owning the home including mortgage interest, private mortgage insurance, real estate taxes, home owners insurance, and expenses associated with landscape, decorating, and maintenance.

Myth #5 — When the interest rates are low, buying is the smartest decision

The Reality: The real monthly expenses of ownership is often underestimated. In the example below, a homeowner has a $190,000 mortgage with a 4% interest rate. This is compared to a renter who rents an apartment for $1000 and has a 3% rent increase every for 5 years. At first glance, most people will think that it is cheaper to buy.