Buying a home can be one of the largest investments you make in your lifetime. It can also be one of the most expensive as you are responsible for all aspects of the home and the liabilities it incurs. This includes real estate taxes, homeowner’s insurance, maintenance, repairs, and upgrades. While it can seem like owning a home ruins your bank account dry, there are certainly many benefits you can realize as a result of owning a home.
It’s Like a Forced Savings Account
If you are horrible at saving, don’t worry if you are a homeowner. Every time you make your mortgage payment on time, you pay down the principal balance of your loan. This gives you what they call equity in the home. While it’s true that your money is ‘tied up,’ there are ways to get it if you need it. You may be eligible for a home equity loan, which is a second mortgage (second lien) on the home. You may also take out a 1st mortgage refinance in the form of a cash-out refinance. This gives you access to your equity while leaving you with just one mortgage payment.
While we don’t recommend relying on the money in your home’s equity because it’s a good investment for retirement, you can use it as an ‘emergency fund,’ should something serious occur. Just knowing that you have the ‘savings account’ on your back burner can be reassuring.
You May Save Money on Taxes
Even though the tax laws changed this year and fewer homeowners will be able to take advantage of the tax savings of owning a home, the benefit is still there for many. If you are able to itemize more deductions than the standard deduction of $12,000 for single filers and $24,000 for those filing joint returns, you can benefit.
You can typically write off the interest you pay on your first mortgage and sometimes even part of the interest on your second mortgage. The IRS allows you to deduct the interest on mortgages on your primary residence and that were used to purchase or renovate the home. As an added benefit, you may also be able to write off the cost of the real estate taxes you pay to live in the home.
You May Avoid Taxes on Capital Gains
If you buy a home for a lower price than you sell it in the future, you earn what they call capital gains. Typically, capital gains are subject to taxes. With a home, though, you are able to earn a certain amount of capital gains tax-free:
- Single-filers can earn up to $250,000 in capital gains tax-free
- Joint filers can earn up to $500,000 in capital gains tax-free
Watch out for the catch though – you must reside in the home for a minimum of two years before you can escape the capital gains tax.
Your Investment can Appreciate
While the housing crisis says otherwise, typically, real estate does appreciate. Certain areas have seen a slower comeback than others, but overall, homeowners are seeing small amounts of appreciation in their homes. This gives you a larger return on your investment without you investing any more money.
Of course, if you take the time and money to renovate and/or fix up the home, your return on your investment may be even greater in a short amount of time. Even if you haven’t seen a return on your investment quite yet, stick it out because the natural course of the real estate market will bring values back in the long run.
You Have Stable Costs
If you have a mortgage, you know how much it costs each month. You don’t have to worry about it changing year to year. This, of course, isn’t the case with an ARM loan, but you enter that type of loan knowing that you are taking a risk.
If you rent rather than own a home, you are subjected to the increases the property owner mandates each year. You could go year to year without knowing the cost of your housing expenses. Worse yet, you could find yourself without a lease at lease expiration, leaving you at the mercy of the market rent at that time. When you own a home, you don’t have to worry about anyone taking your home from you unless you don’t make your mortgage payments.
You Have Security
While it might not seem like a financial benefit at first, owning a home does give you a sense of financial security. As we stated above, you don’t have to worry about losing your home and finding somewhere to live. This costs money as you figure out where to live and find temporary living quarters until you work something out.
Owning a home gives you the peace of mind that you’ll have somewhere to live and that you have the financial backing of the equity in the home should something happen. There’s something to be said about the feeling of security that it provides.
Owning a home has its benefits. Yes, it’s costly, but if you look at the big picture and realize the benefits you gain as a result, it can be a great way to talk yourself into owning a home rather than renting. Talk with a mortgage lender and/or tax consultant to learn how the benefits of owning a home can help you.