People always say that buying a house is a good investment. The usual arguments are that you’re putting money into ownership instead of putting money into rent, that it can improve your credit and make you look more reliable for other loans, and even that owning a home can be cheaper than renting an apartment. And all of those statements can be true, especially when you take into consideration the impact having a house can have on your annual tax return and how you can use tax expertise to lower future costs.
Where is the money for repair costs and your down payment coming from?
One of the biggest concerns with owning a house can be being responsible for the cost of repairs. If you live in an apartment and the water heater or air conditioning breaks down through wear and tear, it’s inconvenient but you don’t pay for the replacement. With a house you have to pay for the replacement, repairs and any damage that might have happened around it; those costs can add up pretty quickly. But if you have a post-tax Roth IRA, you can withdraw portions of your contribution at any time without having to pay taxes, because you already have, and without a penalty. You can even withdraw up to $10,000 of your earnings without any taxes or penalties so long as it is used for purchasing your first home or for repairing or remodeling your it.
While withdrawing from a retirement account is not usually recommended, if you can withdraw money to help place a larger down payment, that can reduce or eliminate having to pay mortgage insurance. Lenders generally require that a borrower have Private Mortgage Insurance if they’re putting down less than 20% as a down payment, and avoiding this additional expense might just be worth leveraging your tax-advantaged retirement accounts. If you want to analyze your tax-advantaged accounts, contact Roberts Tax Advisory here.