Everyone has different reasons for buying a home. Some families need more space. Some want the privacy of a fenced yard. Others crave the freedom to customize their living environment.
Whatever your reasons are, you’ll also reap the financial benefits of homeownership—and that’s nothing to sneeze at. Buying a home may seem expensive when you’re staring down closing costs, realtor fees and interest payments. But over time, owning a home may actually be in your best financial interest. Why?
1. You’ll build stellar credit.
A mortgage is one of the biggest financial responsibilities most people will ever shoulder. When you buy a home and consistently make your payments on time, you’re demonstrating to lenders that you can be trusted with such a large responsibility. Since mortgage payments get reported to all three credit bureaus every month, homeownership can have an almost immediate impact on your credit. First-time homeowners can see their credit scores rise by as much as 30 to 40 points in just a few months.
Nothing can help your credit scores as much a home mortgage, says Credit.com. “A mortgage can radically increase your credit rating as you make consistent, on-time loan payments.”
2. You’ll build wealth over time.
The longer you own a home, the wealthier you’ll become. Every mortgage payment you make helps pay off your loan balance, causing your equity in your home—the amount you can sell it for minus the amount you still owe—to increase. Plus, any appreciation in your home’s value will also increase your equity. In many cities, home values can more than double over a span of 15-20 years. Eventually, the equity you build will form a significant chunk of your total household wealth.
The average homeowner has about $20,000 in equity at age 35. Over the next decade or so, that number more than triples to $70,000. By the time homeowners reach retirement age, they’ve typically built up more than $125,000 in home equity. According to the U.S. Census Bureau, home equity accounts for more than 75 percent of the average 65-year-old’s total wealth.
3. Your monthly costs are more predictable.
When you rent a home, you’re not just missing out on building equity. You’re also at the mercy of a landlord who can raise the rent on you at any time. Average U.S. rental costs grew nearly 3 percent this year—and even that’s an improvement over the 3.5% increases in 2015. In some cities, where competition for housing is intense, rents are skyrocketing even faster.
With a fixed-rate mortgage, you know exactly how much your monthly payment will be. You don’t have to worry about any unpleasant surprises in the future. And the more stable your housing expenses are, the easier it is to stick to a budget and meet your financial goals.
4. You’ll get a break on taxes.
Mortgages also come with federal tax benefits, which you can use to your advantage. For example, you may be able to deduct some of the interest you pay on home loan debt. You may also be able to deduct state or local property taxes you pay on your home, as well as any private mortgage insurance you may have to pay.
Plus, when it’s time to sell, you may not have to pay taxes on any proceeds under a certain amount as long as you’ve lived in the home for at least 2 of the previous 5 years before the sale.
All in all, buying a home is a great financial move. Once you get past the initial expenses, you’ll get to enjoy a whole host of benefits homeownership brings.
This article provides general information about tax benefits, but shouldn’t be relied upon as tax or legal advice applicable to particular transactions. Consult a legal or tax professional for such advice.