the potential financial benefits of homeownership
homeownership is a goal for many people. owning a home has many benefits, like building equity and strong credit, insurance savings, and more. keep reading to learn how being a homeowner can financially help you.
- building equity
home equity is the difference between the market price value of your home and the amount of mortgage owed. for example, if you bought your home for $250,000 and have paid off $20,000 and your home is now worth $300,000, you will have $70,000 equity in your home. over time, your home is likely to grow in value, resulting in higher equity. your equity will also increase as you make monthly mortgage payments as this will lower how much you owe. while equity typically grows over time and as you make payments, it also fluctuates with the market value of your home. if market values decline that can negatively impact the equity in your home, but when market value grows your equity will build with it. remember, building equity takes time.
- financial stability
building equity increases your financial security by providing money, in your home, that is available to use now or in the future. with enough equity you can borrow from it with a home equity loan or line of credit. in addition, you can use your home equity for investments like home improvements, business ventures, real estate, and the stock market.
- lower monthly payment
owning a home can also help you save on monthly expenses. oftentimes mortgage payments are lower than average rental prices for homes of similar sizes. on top of that, everything you pay towards your mortgage helps build your equity. however, when you rent your monthly payments go toward another person’s mortgage and build their equity instead. read more about the pros and cons of renting vs owning a home.
- building strong credit
when you own a home and make monthly payments on time it can help you build positive credit faster. with improved credit, you may receive benefits like lower costs for other types of financing such as car loans. a strong credit conveys to lenders that you are a financially sound borrower and the risk of you defaulting on a loan is less likely.
- better terms and lower rates on credit cards
in relation to having a strong credit score, you can receive better offers and terms on credit cards like lower annual percentage rates (apr) rates.
- insurance savings
there are potential discounts on insurance services when you purchase your homeowners and auto policies with the same insurance company. some insurance companies will offer bundling deals that can save you 10% to 25%, depending on the company.
- home appreciation
appreciation is the increase in your home’s market value. there are many factors in a property’s appreciation: location, the land the house is on, and neighborhood amenities like school districts and parks. renovations like updating the interior, adding more living space, and/or enhancing curb appeal, etc. can also raise your home value. a large factor in home appreciation is market value growth. the market value growth varies depending on your home location, real estate prices will fluctuate differently depending on region and state. appreciation is very similar to equity; it takes time to increase. your home’s appreciation helps build equity faster and can sometimes allow you to sell it for a profit.
the potential tax benefits of homeownership
the mortgage interest deduction is the most notable tax benefit, however, there are many others that homeowners can now take advantage of. before buying a home, research the different tax benefits and see what policies you can qualify for.
- property tax deduction benefits
a great benefit of owning a home is the property tax deduction. when you own a home you deduct the property tax you have paid in the year from your taxable income, which lowers the amount you owe in taxes. for example, if you paid $4,000 in property tax and the government has your taxable income at $100,000, the property tax you paid can be deducted from your taxable income. so, the government will calculate what you owe in taxes from $96,000 instead of $100,000. essentially, you can have a smaller taxable income because the amount the government considers you owe them decreases. learn more about potential tax deductions.
- mortgage interest deduction benefits
the mortgage interest deduction is a tax incentive for homeowners. similar to the property tax deduction, it allows you to deduct the interest paid on your mortgage loan from your taxable income. this lowers your taxable income and what you owe in taxes.
- capital gains tax exemptions
in addition to owning your home, there are benefits to selling your home through the capital gains tax exemption. this allows homeowners to be exempt from paying taxes on up to $250,000 after selling a property if you file as single and up to $500,000 if married filing jointly. for example, if you file as single and bought your home for $200,000, lived in it for a couple of years, and then resold it for $500,000, you made $300,000 (excludes equity built). the government will not make you pay capital gains tax on $250,000 out of your profit of $300,000. however, your profit is over the limit they allow you will be taxed on the remaining $50,000. there are eligibility requirements, so make sure to look into the specifics to see how to qualify.
the potential social & emotional benefits of homeownership
beyond the financial and tax benefits, homeownership has many social and emotional gains. not only is your home a place to make memories and customize to your taste, but you can benefit your community and future generations.
- increase in civic participation
homeowners will usually stay in their homes for long periods of time, and in return, this helps the neighborhood create a stronger community. a stronger community can lead to an increase in participation in local organizations, politics, volunteering, etc.
- increase in valuable financial education
buying a home comes with learning financial education. this knowledge will be passed on and prepare future generations with the financial skills to deal with mortgage payments, buy a house, and prepare for large financial decisions.
- a place to make memories
your home is a place to make memories. this is where you'll share stories around the kitchen table and experience the full gamut of life's ups and downs. from your baby's first steps to family dinners to sharing family holidays - it's all about having a place for your dreams.
- home customization
a big benefit to homeownership is the ability to personalize and renovate your home to your liking! as a homeowner, you can paint the walls, have pets, anything that makes your house a home, go for it. personalization's and renovations can also increase your property’s value (home appreciation). learn how you can personalize your home to fit your lifestyle.
- pride of ownership
owning a home is a huge accomplishment and comes with a sense of great pride. you have a home where you can experience all of life’s greatest joys in, kids, holiday gatherings, celebrations. this is an important milestone, take pride in your accomplishment!
is home ownership right for you?
a home is an investment that comes with both benefits and risks. as we’ve covered the benefits, some risks with ownership include upfront down payment and closing costs, home depreciation, and illiquidity. weigh the investment benefits that were covered above over the risks before making a final decision if owning a home is right for you.