Did you know? Every mortgage payment is a form of savings because it increases the amount of your home that you own, known as the “equity” in your home. Renters are not able to build equity with their monthly payments.

Owning a home is one of the most powerful actions you can take for building your overall net worth – and securing your future.

Here’s why:

  1. The amount of money a person spends on rent can be about the same as or less than the amount a homeowner spends on a mortgage. When you first purchase a home, the mortgage payment covers mostly interest. As time passes, more of each payment goes toward paying down the balance or principal of the loan itself. So every mortgage payment is a form of savings because it increases the amount of your home that you own, known as the “equity” in your home. Renters are not able to build equity with their monthly payments.
  2. Home ownership is a way to help lower your taxes as well. When you own your home, you can deduct the real estate property tax, some or all of the interest on the mortgage, and the cost of insurance for the property. If you operate a home office from your home, you may be able to take some additional deductions on your taxes. Be sure to consult your tax accountant or adviser, because all of this varies depending on your individual circumstances.
  3. When you make a home improvement, that improvement can sometimes increase the value of the home, which would increase the value of your investment in the property.
  4. The historical average annual return on real estate is approximately 4%, which keeps you on pace or ahead of inflation
  5. If you make a 20% down payment, and secure a long-term fixed-rate mortgage (ideally 30 years), you will have the same payment month after month, year after year. This provides a sense of stability that a renter does not have. Rents are often increased every time the cost of living goes up.
  6. Further, most states have “homestead exemption” laws that protect a personal residence or a portion of the equity from creditors.
  7. Finally, when you are ready to sell your home, if you’ve owned and occupied your home for two of the five years prior to sale, the first $250,000 of gain is tax free for individuals and $500,000 for married couples.

With all of the advantages of home ownership, however, it is still important to make sure you choose a home that you can reasonably afford. We’ll cover what this means in a future post – stay tuned!

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