For most potential buyers, home ownership is a huge decision, particularly in an age of increased student loan debt. Since most people can’t afford to pay for a home outright, the idea of taking on a mortgage—and a multi-year commitment—can be daunting. Everyone’s financial situation is different, but it’s worth exploring the long-term economic benefits of owning a home, which include more than eventually making a profit by selling the house.
Here, a few ways owning a home contributes to financial stability:
Building Equity
Owning property is an investment. That’s one of the simplest reasons people give for wanting to purchase a home—they would prefer that monthly payments go towards their own investment rather than a landlord’s. As a homeowner, every monthly mortgage payment reduces what you owe at the same time that it builds your equity (the market value of your home versus what you owe). Some call paying your mortgage a “forced savings plan,” because you’re essentially paying yourself at the same time you’re paying off debt.
Interest Deductions
The government encourages home ownership by offering tax deductions specifically for home owners. Home buyers benefit the first year they own, as they can claim origination fees as a tax deduction, in addition to mortgage interest and real estate property tax deductions. The amount saved will vary depending on how much you owe and where you live, but it’s a benefit you won’t get from renting. Additionally, if you ever decide to take out a Home Equity Line of Credit (or HELOC), you can get a tax deduction for the interest on your HELOC.
Long Term Living Favors the Buyer
Even if you never decide to make major structural renovations in a home you buy, the improvements you’ll make as the house becomes your home could benefit you financially in the long run if you sell. Any renter that’s ever wanted to grow a garden or make changes to improve where they live knows that, in the end, their efforts serve as a boon to the landlord and the next renter. Anyone that plans to stick around for five years or more is likely to come out on top as a buyer.
Questions about the mortgage process and how much you can afford? An Open Mortgage loan originator can help with that. Contact us today.