Homeownership is the epitome of the American dream, and your home is likely to be the most significant purchase you’ll ever make. If you purchase wisely, the equity growth of your home could lead to financial security.
That being said, there are responsibilities that come with owning your own home and it’s not simply a case of replacing your rental check with a mortgage payment. Below we uncover some of the advantages of being a homeowner as well as some other considerations you should be aware of.
Paying a mortgage builds equity in your property. Equity is the value you personally own in your home versus that which a bank ‘owns’ due to a mortgage. When you rent a property, your rent goes to the owner and when you leave the property you leave with just your personal belongings. In comparison, when you purchase a property and pay a mortgage, a portion of your monthly payment goes towards paying off the principal debt, thereby increasing your ownership in your property with every payment. The balance of your monthly payment goes to your lender as an interest payment. Should you decide to sell your property you should walk away with increased equity due to the principal you have paid back and, assuming a stable housing market and economy.
Being a homeowner means you benefit from any improvements you make to enhance the appearance or livability of your property. In turn, this should also increase the value of your property in the long run.
Homeowners can benefit from significant tax advantages which potentially makes owning versus renting even more financially viable.
Homeownership can also provide a more stable and independent living environment.
Besides your mortgage payment other financial obligations include homeowners association fees (HOA), annual property taxes, homeowners insurance and possibly waste collection fees. All these costs contribute to your monthly expenses. In the case of renting, the homeowner often builds these costs into the rent, so you may find these costs along with your mortgage is not far off what your rental was, but it’s worth being aware of them.
In addition, maintenance costs and unexpected repairs are something you need to consider and if possible create a separate savings account specifically to cover these costs as the need arise.
Often first-time homeowners are unaware of the additional costs associated with purchasing a property, other than its purchase price. These ‘hidden’ costs can amount to a healthy sum and include: home inspections, mortgage origination fees and real estate transfer taxes. We recommend discussing these costs with your real estate agent to ensure your savings adequately measures up to the financial commitment you are considering.
Nonetheless, here is nothing quite like the feeling one gets from owning your own home. So if it makes financial sense and the timing is right for you, homeownership can be a highly rewarding decision.
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