Homeownership is an American dream. Those who buy into the housing market often see major financial benefits, that far outweigh their initial investment. This is especially true during tax season.
Below are just a few more financial advantages of homeownership.
1. You Build Equity
Home equity is the difference between how much you still owe on your mortgage and the market price or value of your home. Building equity does take time, (unless you make a large down payment or regular prepayments). The length of time you have your home is a factor in how much equity you build and the appreciation you can obtain. The longer you keep it, the more equity you’ll have. As you pay down your mortgage, reducing the amount you owe, you are saving (as the value of your home is increasing)—just as the value of savings account increases with interest. Depending on how long you live in your home when you sell, you will likely get back every dollar you paid out and more.
2. Owning a Home is a Tax Break
One thing people who have never owned a home don’t always think about are the tax advantages of homeownership. You get a number of tax breaks for owning a home, including a deduction for the interest and property tax portion of your mortgage. This deduction is very useful for off-setting the initial financial blow that comes with purchasing a property. The first year you buy your home you are also able to write off any mortgage points on your loan, which leads to savings depending on how many points you claimed. If you ever decide to refinance your home after building equity in it, you also have the option of taking out a home equity line of credit, which is also tax-deductible.
3. Monthly Costs Are Predictable
In the first few years, it may be cheaper to rent, but over time, as the interest of your mortgage payment decreases, the interest that you pay will eventually be lower than the rent you would have been paying. With a mortgage, you can keep your monthly housing costs steady and predictable. You’ll know the base cost that you’re going to be spending to live in your home now and in the future. This provides more stability than rent, which is variable and can change over time. As a renter, you also don’t have a say whether your landlord supplies you with energy-efficient appliances, but you do have to pay the utility bill either way. Being a homeowner, you have control over all of this. It should bring you peace of mind to know that you’re saving money everywhere that you can.
4. You’ll Build Wealth Over Time
We were taught that owning a home is a, “financially savvy” move. This past decade of real estate turbulence has shaken everyone’s confidence in homeownership. Homeownership can still be a very savvy financial move – but only if people buy homes they can afford. Sticking to a home you can afford to gradually build wealth is a “rule” that happens to be new and old at the same time. From 2011 to 2016, while the housing market has recovered from the recession, home values have been increasing. Putting money into homeownership versus a rental is similar to between putting money into an investment account versus a no-interest checking account, with the second being only as valuable as it is in the moment, while the investment account increases over time.
-From your friends at the Delphi Realty Group
For comments or inquires contact:
Alex Khodadad, Broker, CPA
1930 Contra Costa Blvd.
Pleasant Hill, CA 94523