If you’re a renter, you’ve probably heard about the benefits of owning a home. Whether you’re content with renting or considering buying, it’s important to understand the advantages of homeownership and why it’s so appealing.
In this Redfin article, we’ll outline eight benefits of owning a home and provide tips to make homeownership worthwhile. Whether you’re searching for a home in Portland, OR, or thinking about purchasing a condo in San Jose, CA, learn about the benefits of homeownership to help you decide if buying a home is the right choice for you.
8 benefits of owning a home
1. Building home equity
2. Home value appreciation
3. Tax benefits
4. Predictable monthly payments
5. Freedom to design your space
6. Long-term stability
7. Access to home equity funds
8. Help improve your credit score
1. Building home equity
Home equity is the portion of your home that you own, calculated as your home’s market value minus what you owe on your mortgage. It grows over time as you make mortgage payments and if your home appreciates in value.
For this reason, many people plan to live in their house for a few years in order to build equity and possibly sell for a profit. Some of the benefits of building home equity include:
- Using the proceeds from your home sale as a down payment on your next home.
- Ability to afford a larger or more expensive home.
- Paying off your home means you can live mortgage-free.
- Using your equity to borrow money for home improvements or other big expenses.
There are various ways to access your home equity, which we will discuss in more detail later.
2. Your home’s value may appreciate over time
Homes typically appreciate in value over time, making them a reliable investment. For example, if you buy a home for $400,000 and its value increases by 2% each year, it may be worth $440,000 after five years. When you sell your house, you could make a profit on the sale.
There are many ways to assess your home’s value. You can use an online tool to estimate how much your home is worth or look at recent sales of nearby properties (known as real estate comps). Making valuable home improvements like kitchen upgrades or a new roof can also increase your home’s value.
3. Tax benefits
There are several tax benefits associated with owning a home. If you itemize your tax returns, you may qualify for deductions such as:
- Mortgage interest deduction: You can deduct interest paid on your mortgage up to a certain amount.
- Property taxes: You may deduct state and local property taxes paid on your house, up to $10,000 ($5,000 if married filing separately).
- Mortgage credit certificate: Qualifying homeowners may be able to reduce their taxes by up to $2,000.
4. Predictable monthly payments
Unlike renting, where landlords can raise rent, a fixed-rate mortgage offers stable monthly payments. While property taxes and insurance may change slightly, your principal and interest payments remain the same as a homeowner.
If interest rates drop, you may have the opportunity to refinance your loan, potentially lowering your monthly payments.
5. Freedom to design your space
When you own a home, you have the freedom to customize the space to your liking. Whether it’s painting the walls, renovating the kitchen, or installing built-ins, you can make the space your own. In a rental, you are typically limited by the rules in your lease agreement. In your own home, you have more flexibility.
6. Long-term stability
Owning a home provides a level of stability that renting may not offer. You won’t have to worry about moving because your landlord decides to sell the property or increase your rent. Owning a home allows you to put down roots and build community in the area.
7. Access to home equity funds
As mentioned earlier, there are many benefits to home equity. You can borrow against your home equity to finance other purchases or projects, such as a wedding, a second home, home renovations, or debt repayment. There are several ways to access your home equity:
- Home equity loan: A home equity loan allows you to borrow a fixed amount against your home with a repayment schedule and lower interest rates compared to personal loans or credit cards.
- Home equity line of credit (HELOC): A HELOC provides a line of credit for a set period, allowing you to withdraw funds as needed with a repayment schedule.
- Cash-out refinance: This involves replacing your current mortgage with a larger loan, giving you a lump sum of the difference between the two loans.
8. Help improve your credit score
Owning a home can help boost your credit score if you had a lower score when you purchased the property. Making timely mortgage payments demonstrates your responsibility as a borrower and can lead to better loan terms and more borrowing options in the future.
Tips to make homeownership worth it
While there are numerous advantages to owning a home, there are also potential drawbacks. Here are some valuable tips to help you maximize the benefits of homeownership.
- Buy a home within your means: Avoid the pitfall of purchasing a home that exceeds your budget and could lead to financial strain.
- Understand your loan terms completely: Some loans may allow for a minimal or zero down payment, but be aware of any potential drawbacks such as additional fees or high interest rates.
- Time your purchase wisely: Ensure you have saved enough, boosted your credit score, or reduced your debt as advised by your lender before making a home purchase.
- Choose reputable real estate and lending professionals: A reliable agent can provide insights on the investment value of a property, while a trustworthy lender can offer guidance on loan options. Compare multiple lenders to secure the best rates.