Everyone has their own reasons for becoming a homeowner. A house is something to call your own. It provides families with extra space to grow or play. Plus, homeownership can be a great financial move, too.
There are some universal financial advantages of owning a home that you should consider when deciding to buy. Here are few reasons that you can enjoy your new home and the improved financial portfolio and outlook that goes along with it.
That’s something every family can appreciate.
Scheduled (Forced) Savings
Have you or a spouse ever had trouble setting money aside? Getting a mortgage is one way to force yourself to channel money into an investment. Your monthly payment acts as a scheduled savings plan in which you’re building equity (the difference between the current market value of the property and the amount the owner still owes on the mortgage). Renting property builds no equity, which means that you’re not building wealth for yourself, either.
Build Equity Every Month by Paying Your Mortgage
This is seen as one of the primary financial advantages of homeownership. Any payments you make that go towards the balance of your loan, and not the interest, increase your equity. Your equity is essentially your ownership of the home. The more equity you have, the more cash you’ll receive when you sell the home. Additionally, as the value of your home rises because of a favorable market or home improvements, your equity increases, too.
Build Credit History
Your credit score is impacted by the types of debt you have, how long you’ve had those debts, and how you’ve made payments on them. Adding a mortgage to your types of loans enhances the variety of debts you have, which benefits your credit score. In addition, as you continue to make timely payments your credit score will gradually increase.
Did you know that homeownership has tax benefits as well? Unless your loan is for $1,000,000 or more, all payments towards the interest of your loan are tax deductible on your first and second homes. If you take out additional loans for cash or home improvement against your home equity, your payments on the interest of those additional loans of up to $100,000 are also tax deductible!
Capital Gain Exclusion
If you own and occupy your primary residence for at least 2 of the past 5 years, you can earn up to $500,000 (married) or $250,000 (single) on the sale of your home and pay no federal income tax. This a great way to cash in on an increasing home value without suffering from any taxes.
Buying Is Cheaper Than Renting
This should come as no surprise. A recent report from Trulia stated that buying a home is 38% cheaper than renting, at a national average. If you’re looking to lower your monthly housing payment, becoming a homeowner might just be your solution.
Fixed Rate Payments
If you’re tired of the cost of rent constantly increasing, consider buying a home. Your mortgage at a fixed rate will lock in the amount of your monthly payment for the lifetime of the loan. You don’t know how much your rent might be in 30 years, but if you own a home you can guarantee your mortgage payment will be consistent (assuming it’s at a fixed rate). Be warned, however, that property taxes and insurance rates are not fixed.
After seeing all of these financial perks to owning a home, we hope you feel more comfortable with your decision to become a homeowner. It’s a big decision that can have a big payoff, too.