By owning a home with a mortgage, a bank is in a sense handing you money to invest. The appreciation on the house is yours to keep. If your home appreciates $100,000 while you live there, that equity is yours. Sure you have to repay the loan, but when you rent you are still doing the same thing, only you are doing it for the person that owns the home.
There are many responsibilities that come with being a homeowner. As a homeowner, you will be responsible to pay your real estate taxes each year, as well as keep home owner's insurance on the property. If you fail to do these things, the lender can take action against you.
Homeowners realise significant tax savings that are not available to non homeowners. Ask your CPA or accountant, for specific tax advise with regard to your particular scenario.
While there are numerous financial benefits to owning your own home, don't forget about the satisfaction it will also provide. You will be able to paint your living room any color you want, not have to wait for the landlord to replace the old worn out carpet, or have to deal with the neighbors that are always loud when you are trying to sleep! You won't have to run to the laundromat, or scrape the ice off your windows because you didn't have a garage. There are many reasons to purchase a home, and the financial benefits are only a small part to many people.
When comparing renting to buying, many people look at the rent they would be paying now vs. the house payment they would be making now. There are 3 other financial factors to be considered-
- The great majority of home owners benefit from the mortgage interest deduction on their taxes. This amount varies based on income levels, other deductions, and monthly interest amount, but a moderate income home buyer with a $1300 a month payment could easily save a couple hundred dollars a month in taxes.
- With a fixed rate mortgage, which is still the most common mortgage, your monthly principal and interest payment won't go up for 30 years. If you continue to rent however, expect your rent to rise 3-4% per year. So, if you were paying $1000 a month in rent compared to $1000 a month house payment, in 10 years your house payment would be $1000 or your rent payment would be $1410 after a 3.5% increase per year.
- If your home is well maintained in a desireable neighborhood your home will increase in value over time. A $150,000 home over 10 years could increase in value to $222,036 (a $72,000 increase) by appreciating only 4% a year. Compare that to renting, where if you move out after that 10 years and have done a really good job of cleaning, you will get most of your security deposit back.
