Top 3 Financial Benefits of Homeownership
How does owning a home boost finances overall?
Yes, purchasing a home is a huge investment. But once you jump in, you begin reaping the financial benefits.
For young professionals who move around a lot or those who just aren’t sure where they’d like to live long-term, renting makes good sense. However, for anyone who knows they’ll be living in the same city for at least the next few years, it’s almost always a better investment to buy instead of rent a home. Because of the up-front costs and the added responsibility of homeownership, many people fear losing more money in the process. These three main financial benefits help outweigh the risk and make homeownership a smart investment overall.
Equity
The largest financial perk to owning a home, equity is built as homeowners pay toward their mortgage each month and as a home appreciates, or becomes more valuable. According to Odeta Kushi, Deputy Chief Economist at First American, "For the majority of households that transition into homeownership, the most recent data reinforces that housing is one of the biggest positive drivers of wealth creation.”
Of course, the accumulation of wealth through equity and home appreciation does depend on the housing market. Homeowners are in particularly good shape currently, with dramatic increases in equity over the last few years. With the ability to pass that wealth down throughout families, and to reinvest it within communities, the success of the housing market plays a role in driving widespread economic growth.
Long-Term Savings
Unlike paying rent, paying into a mortgage is essentially paying into long-term savings you can access in the future. With rent, the money goes straight into someone else’s pocket, never to be seen again. But when you pay into your mortgage, you pay into your own equity, and although it’s not the most liquid form of long-term savings, it does end up being a large sum of money after multiple years of homeownership.
Many Americans’ retirement plans involve selling their homes to utilize some of the money they’ve saved up through home equity. Of course, this method of savings shouldn’t be the only one to rely on and it isn’t foolproof, since unforeseen circumstances can negatively impact home values and change the amount you have “saved.” Still, it’s better than tossing money at a landlord and homes generally do appreciate as time goes by, if properly maintained and updated.
Tax Deductions
Purchasing and owning a home also come with opportunities to save money on taxes. Some of the expenses that come with owning a home, like mortgage interest, can be deducted from your total amount owed to the government. Especially for first-time buyers dealing with the initial financial demands of buying a home and grappling with interest, these tax deductions can bring huge relief and save thousands of dollars.
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