The Benefits of Home Ownership
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Buying a home has always been built into the American dream, but in the wake of the housing crash, a new generation of homebuyers is treading more carefully.
While renting is more flexible, buying a home has the bigger potential long-term payoff, with tax advantages and quality-of-life benefits. Comparing the costs of buying are more varied and complicated than for renting, so it's important to look beyond just the numbers when making your next move.
You Put Down Roots When You Buy a Home
Although it's better to rent if you won't be staying long or if your plans are uncertain, that kind of flexibility comes with a price. It's harder to feel established in a neighborhood if you aren't a homeowner. Linda Lewis has been a real estate agent in Walnut Creek, California, for 29 years, and she says the main thrill of selling houses is watching people put down roots.
"When clients buy a house," she says, "they settle in and create a community." An added benefit, she says, is that you have the right to paint the bathroom or put in a rose garden without asking permission.
Home Ownership Is a Built-In Savings Account
As Dorothy repeats so often during her stay in Oz, there's no place like home. It's true even if you only have eyes for the bottom line. When you buy a home, you enroll in a forced savings plan. No matter how tight your budget may be, you find the money to make your monthly mortgage payment.
Month by month, you pay down the mortgage and increase your equity — the amount of money you can sell the house for less than what you still owe on it. Over a lifetime, home ownership helps you build wealth.
Buying a Home Has Big Tax Advantages
When you decide to buy a home, you can count on your uncle's support — Uncle Sam, that is. The significant tax benefits of buying rather than renting may be reason enough to invest. Homeowners can deduct mortgage interest on their federal income taxes.
This is a hefty deduction for many people because interest payments are often the largest part of a mortgage payment in the early years of owning a home. You can also deduct some closing fees and your property taxes.
Paying a Fixed Mortgage Stabilizes Your Budget
As anyone who has rented a home knows, rent hikes are the norm and often out of your control. If you're in an area without rent control, the landlord can raise the rent whenever he or she likes.
Even with rent control, there are exceptions and you can't count on your rent remaining stable. If you buy a home and take out a fixed rate mortgage, your house payment stays the same for the life of the loan, whether it's 15 or 30 years.
Buying a Home Costs Less than Renting Over Time
Buying is the cheaper alternative over the long term. While your mortgage payment may initially be more than you'd pay in rent, you'll spend less over the life of the loan if you buy. Rents may rise over time, changing the equation. Also, given the tax benefits of home ownership, your true out-of-pocket costs from day one can be less than if you rent.
When you factor in the possibility that real estate values often go up over the years, home ownership looks even better. The cherry on top is that when your mortgage is paid off, you can stop making payments but you keep the house.