Wondering why people choose to buy rather than rent? Following are a number of advantages you may not have considered when thinking about buying a home:
Choices – To begin with, there’s a tremendous joy to owning your own home. You can do what you want to it – paint your own colors, grill out in the backyard, run around, make noise, hang pictures. It’s all yours. You and your family feel permanent, planted, secure in the fact that you control your own environment.
Stability – When you own a home, you know what your payment is every month. It may vary a bit when homeowners insurance or property taxes increase, but its far more stable than rent (so long as you have a fixed interest rate on your mortgage). And, you’ll pay pretty much the same monthly amount for as long as 30 years. That certainly won’t be the case if you rent.
Value – Even as your payments stay the same, the value of your home will be going up. Sure, we’ve seen that property values don’t always go up, but historically homes appreciate about 5% per year. And every monthly payment means you owe less on your home than you did the month before. Just imagine that the entire time you’re paying down your loan, your home value is appreciating!
Taxes – Another financial benefit to owning is the tax advantage. Most of what you pay every month, especially in the early years of your loan, is interest. Mortgage interest is deductible on your tax return. You can deduct mortgage interest as well as property taxes from your Federal Income Tax and, in some states, from your state income tax as well. When calculating “is it cheaper to rent than to own”, don’t forget to figure in the tax savings. HUGE benefit to owning.
Equity – When you have enough equity in your home (equity is the difference between what you owe and the value), you can use that equity to get a home equity line of credit (HELOC). A home equity line (or loan) allows you to borrow the equity for things like home improvements or college education. The interest rate on home equity loans is far less than on credit cards and the interest you pay on a HELOC is tax deductible. Or, when you sell your home, you can take that equity to put down on your next home.
Return on Investment – Finally, if you do sell, as long as you have lived in your home for two of the last five years, you can exclude up to $250,000 profit for yourself or $500,000 profit for a couple from your capital gains. What does that mean? If you live there for two years, sell and make a profit of $250,000, you don’t have to pay tax on that profit! Where else can you make that kind of return on an investment tax free?
Future Potential – Owning a home is a huge investment in your future. The first home you purchase, if you buy right, should lead to an even better second home. Over the long term, owning a home will provide financial security for your retirement through equity growth. The longer you stay in your home, the less you owe and the more its worth.
What are your questions about buying a home?
