5 Benefits of Becoming a Homeowner
If you’ve been saving for a while or are jumping on the home buying wagon before interest rates rise, there several financial benefits to homeownership to remember when weighing the pros and cons.
- Building Equity – If you rent, each month you pay your rental costs in exchange for living space and the transaction is over. Your money is spent, with no other benefit than your living quarters that month. When you own your own home and pay your mortgage each month, you build equity. In other words, your increase your assets each month. A portion of your mortgage payment goes towards your net worth. In additional to building your net worth, you can use the equity you have in your home to lend from. For example, if your home is worth $300,000 and you have $100,000 in equity, a bank will let you borrow against that equity in the form of a home equity loan. Usually homeowners use these types of loans for home improvements, but the option can also be helpful for a variety of other large expenses.
- Tax incentives – Mortgage interest is tax deductible if itemized on your tax return. When you pay tax, you can deduct the interest paid on your mortgage up to $1,000,000 in mortgage debt. Tax deductibles lower your taxed earnings meaning you end up paying less tax at the end of the year.
- You Control Your Expenses – When you own your home, you get to decide, plan and execute all of your expenses. Hate paying the utility bill? You can choose to put more efficient windows, water efficient faucets, and decide the interior temperature of your home to impact your bills. Your mortgage will always be the same payment (unless you’ve chosen an ARM, which you are well educated on by now, since we know you read our post on mortgage types), unlike rent which always has the potential to increase with each new lease signing. Careful and thoughtful planning on these aspects of your home can impact your monthly bills dramatically, and you get to decide the outcome.
- You Build A Strong Credit History – Each month you prove you can pay off a large loan on time. This shows lenders you are a good candidate for future loans and will improve interest rates offered to you on future loans.
- Appreciation – Appreciation is defined as the increase of an asset’s value over time. While your car will most certainly depreciate in value over time, your home’s value will likely increase. The price of existing homes increased by 5.4% annually from 1968 to 2009 on average according to the National Association of Realtors. In some communities, these numbers can be much greater and the payoff can great. As long as you own your home long enough to wait out any possible dips in the market, over long periods of time, the trend is decidedly upward.
Overall, it’s important to look at both the financial benefits and costs of homeownership before making your decision. Check out our article on the 5 Hidden Costs of Homeownership to educate yourself before jumping in!