While it may seem like home prices are on the rise here in Texas, it’s important to remember that compared to many other parts of the country houses here are very affordable. With rent prices skyrocketing, many people are opting to buy. There can be risks and barriers associated with buying a home such as the threat of depreciation, being tied down to one place, and saving enough money for a down payment. However, a significant thing to remember is that home ownership has both financial and social benefits, such as:
1. Paying a Low Mortgage Rate. This one is actually an advantage of buying a home right now and does not necessarily apply to all time periods. Currently, we are experiencing some of the lowest mortgage rates historically offered. To put this into perspective, the average 30 year fixed rate mortgage interest rate in 1984 was 13.88, whereas in 2014 it had dropped to 4.17. This means there is a dramatic difference in the amount the average homeowner is paying in interest each month. While the price of homes may be going up, the low mortgage rates still make it a fantastic time to start your home ownership journey.
2. Hedging Against Inflation. One of the most significant financial benefits of owning a home is that it protects you during periods of inflation. What does this mean? It means that if you have a fixed-rate mortgage, the price you pay to have a roof over your head can’t change—no matter what happens to interest rates or the economy. The cost of your home is locked in for the term of your loan, such as 15 or 30 years. Even adjustable-rate mortgages come with an interest rate cap, so you know the maximum potential mortgage payment that will be due each month.
Additionally, we’re seeing rent prices go up significantly each year, making it difficult for renters to keep up! When you own a home, you will have peace of mind knowing that your monthly mortgage payment will be the same in 5 years as it is now.
3. Saving Money on Taxes. There are a few tax breaks that can only be deducted if you are a homeowner. One of these is the interest on your loan. Unless your loan is more than $1 million, you can write off the amount you paid in interest the year prior. This is handy considering it’s likely that the majority of your monthly payment is going to be interest for the first few years after you buy. You can also deduct your property taxes – which is also likely a large part of your monthly loan payment, and in some cases you can also deduct your private mortgage insurance.
When you sell your home, you will be able to avoid some of the taxes on the profit you make if you meet the ownership and residency requirements. You have to have owned the home for at least two years, or have lived in your home for two of the past five years you’ve owned it.
4. Building Equity. Equity is a word that gets thrown around often when talking about purchasing a home. Equity is the value of a property that you actually own. For example, if your home is valued at $250,000, and you owe $100,000 to the lender, you have $150,000 in equity.
One grows their equity through paying their mortgage each month, thus lessening the amount they owe. A fixed-rate mortgage payment is made up of a principal and interest portion. When you start off, you will inevitably be paying more interest than principal. As time goes by, the principal part of your payment increases slightly every month year after year. It’s lowest on your first payment and highest on your last payment. Each payment you make brings you closer to owning more of your home and owing less, a opposed to paying rent where you will own nothing at the end of your stay there.
5. Stability. Aside from the apparent stability of settling on a place to live and not having to worry about moving anytime soon, owning a home provides social stability. Studies show that homeowners are 11% more likely to be educated in ongoing political and social news and are 46% less likely to experience substance abuse or domestic issues. People who own homes are more likely to be involved in their community and build relationships with other people in the community, providing them with a solid foundation upon which to build their lives.
Additionally, A study done by the American Neighborhood Reinvestment Project found that children of homeowners get higher reading and math scores on average, are 116% more likely to graduate from college, and are 59% more likely to own their own home within 10 years of departing your household. These statistics are pretty staggering, and prove that owning a home can help set your children up for a successful future.
6. Forcing you to save. Paying a mortgage every month and reducing the amount of your principal is like a forced savings plan. Each month you are building up more valuable equity in your home. This equity is essentially part of your net worth, so in a sense, you are preparing for your future without having to think about it too much.
Someday you will have a piece of property that you can sell for profit, rent out, or reap the benefits of living without a monthly mortgage or rent payment in.
7. Building a strong credit history. As long as you are consistently making your monthly loan payments on time, you are demonstrating to other lenders that you are a good borrower and the risk of you defaulting on a loan is small. This helps to build your credit, which can be helpful in the future when you may need other loans for buying a car, remodeling your home, or paying other major expenses.
8. Customization. When you own a home, you’re free to customize the home to your liking. Many renters have rules against pets, the color you can paint rooms, or changes you can make to the appearance of your house. When you own, you can do all the things that make a house your home without having to get anyone else’s approval. Add whatever you like to the inside of your home (just be careful not to do anything that might decrease its resale value). Always wanted a pool in the backyard? Add it! Want to change flooring or countertop materials? Go for it! The house is yours to customize as you please.
9. Privacy. One of the greatest benefits of owning your home is the privacy it can give you. Living in an apartment, you might have to deal with thin walls and noisy neighbors, this is much less likely when you own a house. Sure, there can be the occasional noisy neighbor, but the area that separates you from them is generally a lot larger. Rental neighborhoods many times come with a constant stream of new tenants moving in and out which can be bothersome, when you own a home it’s likely that you will have the same neighbors for many years. Additionally, if you rent an apartment, duplex, or home, your landlord may come and go as he/she pleases. If you own your property, nobody can enter unless you say so!
10. Pride of ownership. One primary advantage that homeowners report is the feeling of accomplishment that comes along with owning a home. Having somewhere that you and your family can make memories, celebrate holidays, and spend time with friends is an important milestone in many people’s lives. Home ownership represents the American dream for thousands of families each year. This sense of stability is a major factor in many people's decision to buy.