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The Advantages of Home Ownership

The incredible blessing of owning your home is it can be one of the greatest and most secure saving and investment vehicles in the world today. The truth is, we all have to live somewhere. Unless we live somewhere for free, there are only two choices we have regarding our housing situation. Either you must rent or own a home. If you rent, you gain absolutely nothing. The only time I recommend renting is if you cannot afford to purchase a home or plan to spend less than one to two years in a location. Let me explain. Home ownership allows for your home to essentially act as a savings account. No doubt, most people begin owning a home by taking out a mortgage, which basically is a loan to purchase a home from a lending institution. By taking out a mortgage, the lender will be the majority owner for a lengthy period of time (typically 30 years). The interest payments and accumulation thereof will also be fairly great. However, history has shown that houses by and large appreciate in value through the length of the mortgage to such an extent, that the increase in value will surpass the costs of interest charged by the lending institution. The only time this may not occur is if interest rates are extremely high (usually greater than 10%) and/or if a protracted economic downturn takes place. However even then, by renting you are giving your hard earned funds to another whether in good or bad times. You will never develop ownership in one of the most needed and desired assets in our country today; a house. Let us consider how one can benefit in making use of the ”Smart House Program“.

Renting Vs. Owning

Typical rent for a 2 to 3 bedroom apartment in a nice and safe neighborhood will range anywhere between $500 to $1,200 monthly, depending on the area you live. Usually utilities are not included. For example, over a 5 year period of time, a monthly rental payment of $800 adds up to a total of $48,000. Although $800 per month doesn't seem like a lot of money, $48,000 saved in 5 years is a considerable sum. Again, if you rent, this money is gone forever. But, if you were to take this amount and help pay part of the mortgage, not only will it help to pay off the home but you may also derive significant tax benefits as well. Thankfully, home mortgages are still tax deductible. This means that a $1,000/month mortgage payment offers nearly a $12,000 yearly deduction from your total taxable income because of the interest paid on the mortgage (read Buying Down A Mortgage which explains why this is so). In addition to reducing your taxable income, the interest deduction on your mortgage may also significantly reduce the taxable percentage on your income. For example, the percentage tax burden for married couples filing jointly for the year 2006 is as follows; 15% under $58,100, 25% from $58,101 to $117,250 and 28% from $117,251 to $178,650. Therefore, if your combined income as a married couple was $60,000 for 2006 and you had a $1,200/month mortgage, the IRS will allow you to subtract around $14,400 of your yearly mortgage payment from your income. This leaves you with a $45,600 taxable income which drops you down from a 25% income tax rate to a 15% taxable income bracket. In real terms, you would receive a $8,160 tax reduction just because you owned a home!

It is worth mentioning that due to the combined additive effects of real estate ownership, not only would you receive a $8,160 tax reduction, but in most instances your property has also increased in value because you 1) are paying off your mortgage and 2) local real estate values have increased. To illustrate this concept, in 2003 we build the Windsor model "Smart Home" for an approximate total cost of $300,00 (land and house combined). Three years later, it sold for $547,000, which amounted to a $247,000 profit! This is certain proof that home ownership can be a very worthwhile investment.

Also, another great tax advantage is the recent IRS ruling that allows you to sell your home after two years and not have to pay any tax on the profit. This is true only if the home is your primary residence and you have actually lived in it for a full 2 years. This can be quite a windfall as there are few investments where one can write off total profit as in other investments which require capital gain (taxable) payments.

The Financial Accumulative Effect of "The

Smart House Program"

Let us look at some of the benefits that can be derived from "The Smart House Program". Consider if we could generate a conservative $600 per month from the "addition". If we purchased a house with a $200,000 mortgage at a 6.0% fixed interest, our monthly payment would be $1,200/month with a 30 year mortgage. Add an extra $150/month for house insurance and property taxes and our total house payment would be $1,350 per month. Most lenders would require a yearly gross household

income of $45,000 to be able to afford a mortgage of this amount. However, if you subtract $600 from the $1,350 monthly housing cost, your total out of pocket expense would only be $750! This makes the mortgage not only more manageable to pay, but offers additional funding to pay extra bills, savings, etc.

A View To Debt Reduction

By using the above example, it is easy to see how the additional income generated by “The Smart House Program” can be used to help pay off debt. In perspective, over the life of a 30 year mortgage, if you could save $600 a month because of the additional income generated from this arrangement, your total savings would be $216,000! If we were to add the tax deductions in our previous example for a 30 year period, and we can add another $53,190. What a great savings plan! This is worth nearly $270,000!!! Friend, this is not chicken feed and paints a realistic picture for debt reduction, investment, and a retirement savings program. Moreover, this does not even take into consideration the

increase in property value that normally occurs over time. We are truly are on our way to realistically becoming a millionaire without getting involved in dangerous investments.

Applying For A Mortgage

Buying a home starts with knowing how much you can afford. Three factors determine this. 1) Income 2) Debt level and 3) Downpayment ability. Lenders (as in banks, private mortgage companies, etc.) will base your ability to pay the monthly mortgage on a percentage of gross income minus monthly debt (credit card payments, car payments, loans, alimony, child support, etc.). Most lenders take 35% to 42% of your gross income minus your monthly debt. Some private mortgage companies go as high as 50%. For example, if you made $70,000 yearly, then $70,000 x 0.38 = $26,600. Divide this figure by 12 months/year = $2,216. From this, you need to subtract out monthly obligations. Additionally, most lenders will

include the cost of property taxes and house insurance as part of the mortgage payment. Generally, this is about 14% of the mortgage amount. Therefore, with a $200,000 mortgage at a 6% fixed interest, our mortgage payment would equal approximately $1,200/month. If we include

property taxes and insurance at $168.00 monthly ($1,200 x 0.14), our total monthly house payment equals $1,368.

Most lenders require a downpayment of 5% to 10% of the purchase price of the house (a number of lenders now offering “no money” down programs, especially for first time homebuyers). If we look at the 30 year mortgage payment calculator below and base the percentage

percentage amount on a fixed rate of 6.0% as of this writing, an income of $70,000 would allow us to buy a home costing around $340,000 (assuming we do not have any long term debt obligations).

I highly recommend that individuals go to at least three lending institutions, whether banks or private mortgage companies. Have them perform a pre-qualification for you (which most do for free), which is a lenders process of finding if a borrower is creditworthy and capable of making payments on a loan. At the same time you can find out what the lending institution is willing to offer you. Shop for a mortgage just as you would a car since this may be the largest loan you will ever make.

Finally, a word on debit/credit cards. Although convenient, the indiscriminate use of credit cards can be dangerous and eventually lead the user into the bondage of unmanageable debt. Again, an example would best describe this. Let's say you borrowed $10,000 on credit at an 18% interest rate (common credit card interest rates range between 12% to 22%), your monthly interest payment alone would be around $150. Because it appears manageable, people continue to use credit cards indiscriminately. But you must understand that you are not paying off one single cent on the principle amount of $10,000! In other words, if all you paid was the $150/month minimum payment, you will pay $150/month for eternity! If you paid just an additional $50 monthly ($200 total) to help pay off the principle of $10,000, it would take you almost 8 years to resolve this debt without even using your credit card once! This is why credit debt can be dangerous and should only be used if it can be paid off monthly. The goal is that credit (or finances in general) should be your servant, not your master.

Turning A Great Financial Tide

Would you like to consider a way to really get a strong financial footing? One way would be to apply a 15 year mortgage to our example. Remember, we calculated a $200,000 mortgage to cost almost $1,350 a month, including insurance and property tax. A 15 year mortgage at 6% would cost $1,687.00. Add the extra $150.00 for taxes and insurance, and our total monthly house payment

would be $1,837.00. However, if we used the $600.00 income generated from the “Smart House” addition, you would only have to pay approximately $1,237.00 per month, which is actually $133.00 less than what it would cost you to pay for your 30 year mortgage alone! Then, if you also use the Mortgage Savers Program© on this 15 year mortgage, you would own your home in 12.9 years instead of 15 years, saving another $35,000 (interest and

mortgage payments eliminated = $222.91 per month). And this does not include savings on the tax deductions you could claim because of the mortgage, property improvements and depreciation based on your house being a income producing property. The end result is that you'll own your home free and clear in 12.9 years and have made a possible* total of $256,894 compared to holding a 30 year mortgage. To be debt free and having a net worth at 256,894 in 12.9 years using this program is no small achievement. Again, this does not include the increase in your homes value over time.

Now, let’s take this a little further. What would happen if you continued paying $1,237.00/month and made $600.00 income from the rental, converting this into a savings program for the remainder (17.1 years) of what you would have normally paid if you retained a 30 year mortgage? This really shouldn’t be a problem since you’ve already done this for the past 13+ years. Continuing such a savings program for the next 17 years would net you an additional $376,585 in gross profit. And if you had invested this amount in a 5% savings account (or bond), your total would swell to $593,096 in a little over 17.1 years. And, more than likely by this time, your house could have appreciated at least to half a million dollars, if not more. Which leads to our next discussion point.

How To Become a Millionaire

Using “The Smart House Program”

Is it possible to realistically become a millionaire using the “Smart House Program”? We believe so as the above example has illustrated. But it probably will take help from above, a willing heart, and a commitment to follow through with practical financial planning and budgeting. Moreover, we also believe that at the time of this writing that if you were to purchase an average American home, and if real estate values continue to rise as they have in the past, your home will probably worth well over $1,000,000 within 15-30 years from today. If this is so, you would have a combined cash and asset value well over 1.5 million dollars. Amazing isn’t it?

We seriously believe this program is a practical and realistic means to become a millionaire + some. We hope you do too.

In Conclusion

We hope this presentation has been a help and an encouragement to you. Please feel free to contact us if you have any questions. Also, if you would like to pursue this program, we have available a “Smart Home” house pak, featuring 7 of our favorite plans. We can also modify a favorite houseplan of yours to suit individual desires and/or family needs. At the same time we would like to help you with your building plans through our network of national builders. If you have a mortgage, in the very least we hope you’ll take advantage of the Mortgage Savers Program©. It is our hope that we can be a blessing to you in your housing/financial needs.

Hope to hear from you.

Blessings!

*possible is used to describe these examples on an illustration purposes. It is possible that the values used in these examples can be realized. However, one needs to keep in mind the variableness of life (such as a not being able to rent out the unit a full 12 months) whereby the examples used may not be able to acheive the same results.

Paying Down A Mortgage

A mortgage works by initially collecting a majority of the interest on the loan in its early years of existence. This type of loan is called an amortized loan. Only years later does the mortgage substantially begin to pay off the principle. In our $200,000, 30 year mortgage example, the first year will only pay off $2,245 of the principle while having paid out a total of $10,944 in interest alone. A mortgage calculator can show you how much interest and principle are applied over a 30 year period.

One way to reduce a mortgage is to pay down additional amounts over the monthly loan amount. For example, if you add an extra $25 a month on a 6%, $200,000 loan, you would cut 51 payments off the loan and save $44,405 in interest over the life of this 30 year mortgage! Add another $25 for a total of $50 paid over and above the loan amount and you would save $74,067 in interest and have 84 fewer payments. Using the chart below, just by paying an extra $222.00 a month on a 15 year $100,000 mortgage, you save a whopping $92,142 on a $100,000!!!!

Loan Loan Interest Monthly Total Savings Amt. Period Rate Payment Interest $$$$

100,000 15 yr. 8% $955 $72,017 $92,142

100,000 30 yr. 8% $733 $164,160 $0

save a whopping $92,142 on a $100,000 loan! This is almost the full amount of the loan itself! Therefore, by “turning the tables”, so to speak, we are enhancing your financial position in a most significant way. There are other methods in “buying down” your mortgage, such as through a program we offer called the Mortgage Savers Program

Mortgage Savers Program

“paying down a mortgage”. Taking our example of a $200,000 mortgage at 6% for 30 years, you would be able to save up to $80,339.77 what you normaly pay in interest by eliminating 67 monthly payments thereby shortening your mortgage to 24.3 years and building up your home equity 300% faster!!! What is so great about this program is that it works without increasing your monthly payment. This revolutionary program is free of charge and will only cost you a $49.00 one time set-up fee, yet can save you thousands upon thousands of dollars. In combination with the “Smart House Program”, you can now potentially make over $350,000 in nearly 24 years - six years sooner than if you had not used this program at all! And this doesn’t even include the increased potential valuation of your home in the 24 years. Just click on this hi-lited word, MSP, and you will be brough directly to the page which explains this great program in detail.