Many people prize homeownership as a part of the vaunted American dream. It speaks of stability, of being part of a community, and of responsibility. When you own your own home, you find a variety of advantages over having to rent.
Homeownership is an excellent investment, a means of building equity, a way to receive significant tax deductions, a means of building a solid credit history, and the best possible route to living in your dream home.
An Excellent Investment
A report from the Federal Reserve Bank of St. Louis states that, in the United States, the average price of homes sold rose 10% between 2014 and 2019. The structure of the house itself may drop in value, but the land upon which it stands can grow more valuable. You are making an investment in an asset that benefits you rather than a company for property management.
A Means of Building Equity
Your equity refers to the difference between the amount you can sell the house for and the amount that you owe. As you pay down your first mortgage, your equity grows. Over time, while you make the same payment amount, more of that payment each month goes to the mortgage’s balance rather than to the mortgage’s interest. This builds more equity.
When you rent, your payments go to a landlord. When you make a payment on a mortgage, you build up the equity of your home. This is why home purchases are often thought to be a savvy financial move.
Receive Significant Tax Deductions
As found in the Tax Policy Center, homeownership’s tax benefits date back to 1913. Most notable was the start of the interest on mortgages being deductible. Also deductible are the interest relating to home equity loans, some closing costs, and property taxes when buying the house.
Any interest that you pay on a home mortgage is a tax-deductible amount. This means homeowners are able to reduce their taxable incomes by deducting the mortgage’s interest. Depending on the jurisdiction in which you live, you can also find property tax deductions; this is beneficial because it permits you to further reduce your taxable income.
Imputed rent is the idea that with homeownership you act as a landlord for yourself. Landlords are taxed for their rental income, however, while homeowners are not. Owning and residing in your own home results in avoiding tax payments on rental income.
Should you decide to sell your home, you may be exempt from up to a quarter of a million dollars after selling due to a capital gains tax exemption. You must meet certain requirements for eligibility. Still, homeowners generally benefit through this tax from selling their homes.
Build a Solid Credit History
When you choose among mortgage solutions and consistently make your monthly payments on time, you demonstrate to future lenders that you are a trustworthy borrower. You demonstrate that the risk that you might default on a loan is not significant. This solid credit history is valuable for future needs such as car loans, home improvement loans, or borrowing to pay other major expenses.
Create Your Dream Home
When you own your own home, you have enormous latitude in the decisions you make for decorating and lifestyle. You are free to paint rooms any color you prefer, own whichever pets your heart desires so long as they are legal in your city and state, and change up flooring or carpeting on a whim.
You can make all these adaptations and more to make the house your preferred home, all without a landlord’s approval. If you do not like the ceiling type, make whatever adjustments you like. Lighting fixtures, plumbing fixtures, and more are yours to swap out for alternatives.
Purchasing a home is a big decision. It is a commitment that lacks the flexibility of renting. Still, homeownership has a variety of advantages, financial and personal. You establish yourself as a person with roots in a community and with credit that only grows better over time, provided you make your payments in a timely manner. You have the freedom to shape your home into the residence of your dreams. Use this guide to help realize the benefits you will enjoy when you own your own home and look into mortgage solutions to realize that part of the American dream.