Homeownership can be expensive, there’s no doubt about it. Dealing with repairs or just regular maintenance can be downright costly. Sometimes it might feel like you are constantly paying out without gaining any benefits in return.
While you probably won’t see the financial benefits of being a homeowner right away, in time, they will be very apparent. Following are the most common benefits you’ll see.
Even if you don’t make any changes to your home, but you keep it well maintained, your house may appreciate over time. It may not be a lot and it may even fall from time-to-time, but eventually the values usually come full circle. We saw this with the housing crisis. So many homeowners lost tremendous value in their homes. But, those that stuck it out are seeing those values come back again.
If you are in your home for the long haul, chances are you will see a return on your investment just with natural appreciation.
Building Equity With Monthly Payments
Every time you write that large mortgage payment check, you build equity in your home. Just how much depends on many factors including your interest rate and the term of your loan. Every payment, however, gets you that much closer to owning your home free and clear.
You can look at your amortization table from your closing documents to see just how much of your payment goes towards the principal and how much goes to interest. No matter how much goes towards the principal, though, you make gains with every mortgage payment you make. In other words, your investment gets larger with every passing month.
An Emergency Savings Plan
While we don’t recommend using your home’s equity as your emergency savings plan, it could work in a pinch. Because you reduce your principal with each payment you make, you increase your investment. Once you hit the point where you owe at least 20% of the home, if not more, you can tap into it with a cash-out refinance. If you end up in a serious situation where you don’t have the money to pay for, the equity in your home can be your ‘back up’ plan.
Many homeowners enjoy the tax benefits of owning a home. While you do have a lot of expenses as a homeowner, many of them can reduce your tax liability including:
- Interest paid on the loan
- Interest on a home equity loan (up to the first $100,000)
- Real estate taxes
- Points paid on your loan
You can often use these deductions if you itemize your tax deductions each year. The interest deduction alone could be a rather large deduction for you, as could your real estate taxes depending on where you live.
Capital Gains go Untaxed
Usually capital gains are the first thing you worry about when paying taxes. You want to avoid too much of a profit as you know it will get eaten up by taxes. With your primary residence, though, this isn’t the case. If you are single, you can keep up to $250,000 profit from the sale of your home tax-free. The only stipulation is that you must live in the home for 2 years in order to qualify.
If you are married, you get an even larger profit as you can make up to $500,000 before being taxed on your capital gains. Again, however, you must live in the home for at least 2 years as your primary residence.
Homeownership Can Increase Your Credit Score
You might think even think of the ramifications of your mortgage on your credit score, but if you pay it on time, it can help in a big way. Credit scores are comprised of many factors including timely payments, the type of debt, and the age of the debt.
If you keep the same mortgage for many years and make regular payments on it, it could help improve your credit score. In the same respect, though, if you miss payments or default on the loan, it could have a drastic negative effect on your credit score. The best thing to do is only take a loan that you know you can afford to avoid anything negative from occurring.
There are many financial benefits of homeownership, and each person is different. Even if your home’s value drops or you don’t see your home appreciate fast, it will. Investing in real estate is meant as a long-term investment. It’s not going to have a quick turnaround or make you a quick profit. In time, though, it can be one of the most lucrative investments you make in your lifetime.