When you first get out into the world on your own, renting tends to be the common trend. Maybe you might not have the down payment for a house, especially if you’re a first-time homebuyer. And that’s ok! But from a financial standpoint, owning a home makes sense -- by saving you cents.
We’ve compiled a short list of the financial benefits of homeownership that, especially during tax season, outlines buying a home as a much smarter plan than renting.
1. Buying is cheaper than renting
At the beginning, it may be cheaper to rent. We know that a down payment can feel overwhelmingly big, but take a moment to think about investing in your future. Over time, as you pay off the interest portion of your loan, you start to pay more of the principal portion, and you build equity (more on that later). A home is a long-term investment, not a short-term rental place to put your futon and bean bag chair.
2. The benefits of having a mortgage and owning a property
- Closing Costs: The year you buy your home, you are able to claim the origination fees (also called points) on your loan. Typically, the origination fees are around 1% or more. Thus, you can see why this is such an important financial benefit.
- Mortgage deduction: Our Federal Government allows homeowners to deduct the interest from their income taxes. This is especially important in the early years of your home loan because this is when you are paying the most interest and the least principal.
- Property tax is deductible:Real estate property taxes (the worst, right?) paid on your primary residence and a vacation home are fully deductible on your income taxes.
3. You can build equity
This is the most obvious benefit. But a lot of people aren’t really sure what “building equity” means. Briefly, It’s the difference between the property’s current market value and the amount you still owe on your mortgage. Let’s say your home is currently valued at $250,000 and you owe $125,000 on your loan, the amount of equity you’ve built up is $125,000. Each month, when you make a mortgage payment you are building equity.
4. You can customize your carbon footprint
Energy-efficient modifications, from adding insulation to upgrading your air conditioning, can reduce your monthly energy bill. Homeowners can make big changes, such as adding solar panels, geothermal heat pumps, and even wind turbines. These can help your bottom line, while also helping the planet.
5. It’s about more than just money
It’s important to include that there are more benefits to homeownership. Money isn’t everything, right? Owning a home can result in better mental health through feelings of accomplishment and fulfilling our desire to lay down roots, or nest. Also, studies show that children benefit from the stability of a home through higher test scores, higher rates of high school graduation, and a higher participation in organized activities.
As a final point, interest rates remain at historical lows. But after a period of strong national economic growth, that might not stay true for long. Also, experts predict that millennials are migrating to the suburbs. Therefore, whichever way you look at the situation, the benefits of owning a home are looking pretty strong.
Already a homeowner? Well, thanks for reading, we’re pretty surprised you made it this far. And in that case, you could always refinance your home loan to lower your monthly payments or get cash out of your home’s equity.