While home ownership may not be right for everyone, here are 10 advantages that are well worth considering.
(1)Building Your Personal Equity rather than Your Landlord’s
Rental rates are increasing in the Denver Area. An example often used is this: at $800 per month, with the average 6 percent rental increase per year, you will pay $126,536 over a 10-year period but have zero ownership of a property. Meanwhile, you’ve helped to payoff the landlord’s investment and built the landlord’s equity.
(2) A Great Tax Shelter
Property taxes and mortgage interest are both tax deductible. There are other tax benefits such as depreciation and deducting any points paid to lower your interest rate.
Here’s an example: Say you take out a $200,000 mortgage loan at 6 percent interest. You pay $12,000 a year in interest on that loan. That means your taxable income for the year is reduced by $12,000. If you’re in the 25 percent tax bracket that means a one-year tax savings of $3,000 (25 percent of $12,000). Talk with your tax professional to learn more about depreciation and tax deductions related to home ownership and your situation. Also, Congress is considering even more tax incentives at this time.
(3) Interest Rates are historically Low
As of Dec 10, 2008 5.25% is not an uncommon interest rate. From 1980 to today the 30-year fixed rate mortgage has ranged from more than 18 percent to less than 6 percent, says Jim Elfelt, a mortgage banker in Virginia Beach, Virginia.
If you’re waiting for home prices to come down another $10,000, you may pay more in the long run if mortgage rates rise in the meantime.For example, suppose you’re applying for a 30-year, fixed-rate $300,000 mortgage. Note how a small change in rate makes a major difference in monthly payments and overall cost:
|Interest Rate||Principal||Monthly Payment (PI)||Total Interest Paid||Total Cost||Total additional Cost|
(4) Buildup Equity and while paying down debt
60% of the average homeowner’s wealth comes from their home’s equity. You might be wondering if buying a home right now is a smart
financial decision. The fact is, homeownership is the key to building long-term wealth, no matter when someone buys. Studies show that, over time,
most homeowners will steadily build equity. As study by the Federal Reserve showed that homeowners enjoy an average net worth of approximately $184,000 versus $4,000 for renters.
This is the only investment of this magnitude that you can purchase with as little as 3.5% or 5% or 10% down. Here’s an example,
Over 10 years, a $10,000 investment in the stock market at a normal 10 percent rate of return would yield $23,600. The same investment
as a down payment on a $200,000 home at a normal appreciation rate of 5 percent would return nearly 5 times the stock market return,
(6) Quality of life
A home provides stability and security for you and your loved ones. Are you tired of waiting days or weeks for the landlord to
get around to fixing the toilet, a window, a clogged drain, or a broken door?
(7) Appreciation Potential
A house is an automatic savings account. You accumulate savings in two ways first, every month,
a portion of your payment goes toward the principal. Admittedly, in the early years of the mortgage, this is not much. Over time, however, it accelerates. Second, your home appreciates. For 80% of homeowners the largest investment they will ever make is their home. In the long run, investments in homes far outpace inflation. Over the past 30 years, the median price of existing homes has increased an average of more than 6 percent every year (National Association of Realtors). Thanks to the power of leverage, a homeowner’s return on investment is even more impressive over time. In the Denver area appreciation has been fairly flat in the last few years, neither going up or down. This varies by neighborhood and the price range of the home.
(8) Pride of Ownership
Pride of ownership is the number one reason given as to why people yearn to own their home. It means you can paint the walls any color you desire, turn up the volume on your CD player, attach permanent fixtures and decorate your home according to
your own taste. Home ownership gives you and your family a sense of stability and security. Plus, many of the upgrades you make may eventually pay off by increasing the resale value of your home.It’s making an investment in your future.
(9)Investment Strategy for the Future
One great investment strategy to consider is to buy a home for each of your children or grandchildren as a gift. Rent it out and fix it up, with the child’s help and involvement. When they are ready for college, they have a built-in college fund, from the rental stream, home sale proceeds, or refinancing proceeds on the home.
(10) Personal control
As a homeowner you can often exercise greater control over your housing costs than renters. For example, you may choose to lower your monthly utility bills by reducing your energy consumption. This may not be possible as a renter if utility charges are bound up in your rental payment. When you buy a home with a fixed-rate mortgage, you can lock in a predictable monthly payment for 15 or 30 years.
That means the largest part of your housing costs, principal and interest, are fixed