Buying a home can be one of the most important financial decisions a person can make. Understanding the advantages of owning a home is important when making the decision to buy.
See the video below for a peek of what we will be going over:
Financial Advantages of Owning a Home
One advantage of owning a home as opposed to renting, is the stability of your housing cost. Rent may go up on a regular basis, while plausible payments on a 30-year fixed mortgage will always remain the same. A plausible monthly rent would be $1,800; Assuming inflation (the rent increase) is 3 percent, in five years your monthly rent will be $2,026.
At this rate, one would have paid a landlord about $115,000. One possible option when obtaining a loan is a “fixed rate” mortgage; This means that the rate of interest will remain the same through-out the life of your mortgage. As opposed to renting, can lead to monthly payments being raised up to 3% or more per year, owning a home which has the advantage of knowing your monthly payments for years to come.
Another great benefit of owning a home would be the tax advantages. Your monthly house payments reflect the largest tax break for most homeowners, the majority of each payment goes toward interest.
For example, one could make $100,000 per year and rent a home for $1,800 per month. Then would have to pay taxes on the entire income of $100,000 when renting, as opposed to owning a home with a monthly payment of $1,800, one would only have to pay taxes on $78,400 of your annual income. The interest you pay on your mortgage may be used as a tax deduction.
An additional advantage of owning a home is the buildup of equity. Equity is the amount of your home that you actually own from a financial perspective. One borrows money to buy a home, they can calculate their equity by subtracting the loan balance from the value of your home. Ending up with a negative number, result in negative equity, which means the home is worth less than you owe on it.
More equity may be obtained by having the property you own increasing in value, or by decreasing the amount of debt you owe. Each month a portion of your payment reduces the loan balance therefore increasing your equity.
A strong incentive to purchasing a home would be the potential of the property value appreciating over time. Appreciation is the increase in the value of an asset over time. This increase may occur for a number of reasons some examples would include increased demand weakening supply, or the inflation of interest rates. This is the opposite of depreciation, which is a decrease over time.
For example, in the state of California, since 1990 property values have appreciated by 140% with an average of 3.46% per year. This increase is a result of numerous variables, as well as a great example of extreme appreciation.
Personal Benefits of Owning a Home
Owning a home also provides several personal benefits. One example of a personal benefit would be privacy. When renting one does not have the same level of privacy due to the presence of neighbors and a landlord.
Another example of a personal benefit of owning a home, would be the option to remodel. When renting, renovations & improvements are not allowed to be made. When having full ownership alterations are up to the owner. Having the option of customization can instill a certain sense of pride.
Being a homeowner sets you in a community, bringing positive reinforcement for all the family.
The Bottom Line...
There are many beneficial reasons to owning a home. First and foremost, when owning a home, one knows exactly how much they will be paying over time. Ownership also includes the ability to deduct one’s interest paid from income taxes.
Two additional financial benefits include, ability to build equity, as well as the possibility of the value of the property appreciating over time. Finally, home ownership provides several personal benefits including; privacy, the ability to make alterations, and a certain level of pride.