Deciding to purchase a home after the divorce is final can seem like climbing a mountain to some. The art of putting emotion aside and looking at buying a new property from a financial perspective is imperative to making smart decisions.
First and foremost, a home is a place to live. Over time, home ownership has also proven to be the single largest contributor to building wealth. One has to be prepared to make the payments that they sign up for as things like appreciation aren’t realized until the property is sold in the future. However, other benefits such as tax deductions, and of course, the fact that you’re paying your own mortgage rather than your landlord’s is the greatest benefit of all.
Factors as follows: Mortgage interest @ 4.5%, loan to value of 80%, rent is calculated at 6% of value, real estate taxes @ 2% of value, maintenance is .5% of value, insurance is $2.90 per $1,000 of mortgage amount and marginal tax bracket used is 30%. “Costs” equal monthly interest expense + insurance + maintenance + property taxes. Net Monthly benefit = appreciation + shelter value/rent saved + tax savings—costs.
Perusing the chart above evidences the value of owning real estate over time and clearly, getting paid to own vs. paying rent is the clear winner at the end of the day.
When advising divorcing clients on their housing options post-divorce, it’s important to understand the long term financial benefits as well. With so many options available combined with the financial and tax benefits when comparing the options of renting vs. owning, a complete mortgage perspective is required.
It is always important to work with an experienced mortgage professional who specializes in working with divorcing clients. A Certified Divorce Lending Professional (CDLP) can help answer questions and provide excellent advice. To find a CDLP in your area, please click here.
This is for informational purposes only and not for the purpose of providing legal or tax advice. You should contact an attorney or tax professional to obtain legal and tax advice. Interest rates and fees are estimates provided for informational purposes only, and are subject to market changes. This is not a commitment to lend. Rates change daily - call for current quotations.