As a renter, you’ve likely heard that owning a home has a variety of benefits. Whether you’re happy renting or thinking about buying, it’s helpful to know the benefits of homeownership and why it’s so appealing.
In this Redfin article, we’ll highlight eight benefits of owning a home and tips to make homeownership worth it. Whether you’re looking for a home in Portland, OR, or considering buying a condo in San Jose, CA, find out the benefits of homeownership to decide if buying a home is right 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 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 many ways to access your home equity, which we’ll cover in more detail later.
2. Your home’s value may appreciate over time
Homes typically go up in value (appreciate) over time, making it one of the more reliable investments. For example, you buy a home for $400,000 and it increases in value by 2% each year. After five years, your home’s value may increase to $440,000. When the time comes to sell your house, you may make a profit on the sale.
There are plenty of ways to check your home’s value. You can use an online tool to estimate how much your home is worth or see what nearby properties have recently sold for (called real estate comps). Other ways to increase your home’s value include making valuable home improvements like kitchen upgrades or a new roof.
3. Tax benefits
There are several tax benefits of owning a home. If you itemize your tax returns, here are some tax deductions you may qualify for:
- Mortgage interest deduction: You may be able to deduct interest paid on your mortgage up to a certain amount.
- Property taxes: You may be able to deduct state and local property taxes paid on your house, up to $10,000 ($5,000 if married filing separately).
- Mortgage credit certificate: For qualifying homeowners, you may be able to reduce your taxes 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 also have the opportunity to refinance your loan. This may decrease your monthly payments, giving you an even better deal.
5. Freedom to design your space
When you own a home, you can do whatever you like with the space. Whether that’s painting the walls, renovating the kitchen, installing built-ins, and more, you have the ability to make your space your own. In a rental, you have to follow the rules outlined in your lease. While you may be able to paint the walls in a rental, you’ll likely have to repaint them when you move out. In your own home, you won’t have to worry about that.
6. Long-term stability
Owning a home provides stability that renting doesn’t always offer. You won’t have to worry about moving out because your landlord decides to sell the property or your rent increases. It’s likely you’ll live in the home for several years, which gives you the opportunity to build community in the area.
7. Access to home equity funds
As mentioned above, there are many benefits to home equity. You can borrow from your home equity in order to fund other purchases or plans – like a wedding, a second home, home renovations, and paying down debt. There are several ways to tap into your home equity:
- Home equity loan: A home equity loan allows you to take out a loan against your home. It’s a fixed amount loan that has a repayment schedule, but often has lower interest rates than personal loans or credit cards.
- Home equity line of credit (HELOC): HELOC allows you to open a line of credit for a set amount of time, so you’re able to withdraw funds as needed. You’ll also have a repayment schedule for a HELOC.
- Cash-out refinance: A cash-out refinance replaces your current mortgage with a new, larger mortgage loan. You receive a lump sum of the difference between the two loans.
8. Help improve your credit score
If you had a lower credit score when purchasing a home, owning can give you the opportunity to improve your credit score. Paying your monthly mortgage payments on time shows you’re a responsible borrower and reliable to repay your loan. There are lots of benefits to having a higher credit score in the long run, such as better loan terms and access to more loan types.
Tips to make homeownership worth it
While there are a lot of benefits to owning a home, there can also be cons. Here are some tips to keep in mind that can help you make homeownership worth it.
- Only buy a home you can truly afford: Don’t make the mistake of buying a home over your budget that you may struggle to make monthly payments on.
- Fully understand your loan terms: Some loans let you buy with a small (or no) down payment, but can come with downsides like additional payments or high interest rates.
- Buy when you’re ready, not before: Take time to save the money you need, improve your credit score, or pay down debt if your lender recommends it.
- Work with a real estate agent and lender you trust: A good agent can guide you on whether the home is a good investment, while a good lender will walk you through your loan options, so compare multiple lenders to find the best rates.
The post 8 Benefits of Owning a Home: What to Know Before Buying a House appeared first on Redfin | Real Estate Tips for Home Buying, Selling & More.