BUYER’S ARTICLES – FOR THE SMART CONSUMER
The Advantages of Home Ownership
Many of the advantages of home ownership are not immediately obvious. However, when you are weighing the pros and cons of buying over renting, understanding these advantages can definitely allow you to make a more educated decision.
For example, consider the down payment that most lenders require. Unless you qualify for a special mortgage program or have an absolutely perfect credit history, most lenders will require that you make a down payment equal to 20% of the purchase price. That down payment can be quite significant! If you are purchasing a home for $300,000, a 20% down payment amount will be $60,000. The primary purpose of these funds is to provide a measure of security for the lender, but there is a secondary purpose that benefits the home buyer.
What is the benefit to the home buyer? The funds that you provide as a down payment actually serve as a high-performing investment vehicle that will help you to plan and save for your future. How?
How Is This Possible?
There is a simple calculation, but the answer is actually fairly complex. Homes generally appreciate in value at a rate of five percent per year. Therefore, let’s assume that your home’s value will increase to $315,000 in just one year. This means that you’ll have earned $15,000 and the value of your initial investment has grown by 25% in only one year! What other investment mechanism do you know of that can provide that amount of security and be as enjoyable as owning your own home?
And there are additional benefits when you buy a home. Your savings actually continue when you purchase a home, because many tax deductions and benefits are available only to home owners. You can deduct the interest that you pay on your mortgages at the end of every tax year – and your property taxes are deductible too. These deductions are used to lower your taxable income. With a $300,000 home, you can expect to reduce your taxable income during the first year alone by around $30,000. This tax benefit is one of the best reasons to consider buying versus renting. When you rent, you are not eligible for this reduction in taxable income.
These deductions create a fantastic advantage for buying over renting. And, as if that weren’t enough, consider that you will have a stable and unchanging housing payment for the duration of your mortgage. In contrast, rental prices increase frequently, usually every year. With a mortgage payment that you can comfortably afford now, you will never again have to face the dreaded rent increase.
As you can see, there are many financial reasons to buy a home. But what about the logistics of your housing? When you purchase a home, at least in most cases, you will have a lot more available space than you would in a rental. Sure, there are private homes available for rent but most people opt to rent apartments. A purchase home definitely has more space than do most apartment rentals.
And speaking of space… if you own your own home, then the space is yours to configure as you like. If you decide that you would like a larger kitchen, for example, you are free to make your own renovation plans. You can express your individual style and taste through the way that you choose to decorate and there are virtually no limits to the changes you can choose to make on your property. Not so with a rental property. Even houses that are rented usually need some type of reconfiguration to meet your particular needs, but when you are renting, you need to find ways to work around this, since you do not have the freedom to modify the property in the ways that you could if you owned the home.
When you rent, you are not able to install a swimming pool, hot tub or in some cases even a play set for your children. Therefore, when living space and the freedom to personalize are important to you, buying your own home is a very good option.
- Home Equity
Equity, when considered strategically, is practically an immediate return on your investment when it comes to buying a home. As a home owner, your home’s equity begins to grow immediately, from the very first day that you are the owner. In the future, as the value of your home increases and the amount of your mortgage decreases, you will be able to borrow against the accumulated equity for expenses like home improvements, weddings or your children’s education. Or, you can use the equity to secure a future mortgage on a second home. The more equity in your home, the better the chance that you will earn a profit when you sell your home and decide to purchase a more expensive home.
Every single mortgage payment that you make will actually increase the amount of equity in your home while reducing the principal of your mortgage.
- Credit Score
Home owners generally have higher credit scores than do non-owners. Remember that a mortgage loan in good standing on your credit report shows responsible borrowing. In contrast, renting does not appear on your credit report at all.
When you purchase a home, you are joining a neighborhood. Most owners quickly realize the value of becoming part of a community and forming relationships with those who live around them. In some cases, renting can provide this same benefit, but renters are often transient and the relationships formed while renting may or may not last.
Security: Home ownership provides the security of knowing that no one else has access to your home unless you specifically grant them access. It also gives you the security of knowing that you have a wonderful place to call home, and that no one can take it away from you.
Owning a home will give you far more privacy than renting. In addition, you will have more access to the private outdoor areas around your home.
- In Conclusion
All of these advantages can and will be yours when you decide that it is time for you to purchase a home of your own.
But there is one more advantage that hasn’t been mentioned yet. When you own your own home, you are realizing a large part of the American Dream. Many people dream of owning their own home and are simply not at a stage in their lives where ownership is an option. Fortunately, you can make the dream a reality by purchasing a home of your own.
Take some time to carefully consider the advantages of home ownership that are listed above, and also consider any possible detractors that you might encounter along the way. Making an educated and well thought-out decision will make you a better buyer and a better home owner in the long run.