How Does Homeownership Help You Build Long-Term Wealth?
Homeownership allows buyers to build their wealth and give themselves more financial flexibility and stability over time. Investing in a home is quite a large step that leads to long term benefits such as increased property value and major tax breaks. Here are some of the ways owning a home increases your wealth in the long-term.
You Will Save Money Most people can agree that it is often difficult to save money each month on their own. Not to mention, situations come up that may cause you to have to deplete some or all of your savings cushion. By merely paying down the principal on your mortgage each month, you can save money. This is due to the fact that as your owed balance lowers, your equity increases. Equity is the amount you can sell your home for after you subtract the portion that you still owe. As long as you continue to make all of your mortgage payments on time, your equity will go up and you will have more money saved.
The Value Appreciates
Although this is not a sure thing, it is likely that your home will appreciate in value, since most homes do. The value of a property appreciates at an average of 3.6% each year; this statistic has held steady since 1991. The rise in the value of a property also increases its equity as well, which, in turn, increases an owner’s net worth.
You can deduct a variety of things from your taxes when you own a home including your mortgage interest, property taxes, and origination fees. This means your taxable income will decrease a good amount and you will be able to save more of your money. It is also worth mentioning that if you were to sell your home and profit off of the sale, you would not have to pay any tax on the profit amount. This is because home profits are not subject to capital gains tax, which means more savings for you.
Know What You Pay Each Month
With a mortgage, you will know exactly what you have to pay each month on your bill. When renting, it is unknown how prices will rise or fall with each passing year. Owning your home means you have the same amount to pay each month, which means there will be no surprises and you can keep your overall costs low and allocate more funds towards your savings, emergency, or investment and retirement accounts. Having more wiggle room with your income will allow you to set yourself up better for the future and put your money in other places that will provide a decent ROI for you.
Your Net Worth Will Rise
People who own their own homes actually have a higher net worth than those who are renting. This is due to the fact that they are paying a mortgage and therefore building equity on their home. You cannot do this with an apartment seeing as your rental payments are going toward your landlord’s property costs and not as an investment into your own. You also grow your net worth as your home appreciates in value over the years since home appreciation increases equity as well. The most recent Survey of Consumer Finances shows that homeowners have more than 44 times the net worth of renters. Renters are operating at a loss of 5%, which is around $5,200 in net worth compared to the average homeowner who is worth around $231,400 and operating at a gain of 15%. If you are looking to build your wealth and are thinking about purchasing a home, it would be a smart idea to start saving as much as you can for this investment. While many people do opt to wait for some time before purchasing their home, investing in property as early as possible means that you will be able to save more money earlier in life. It also means that you will benefit from tax breaks and even boost your credit by making your mortgage payments on time, which is great for those with poor, little, or no credit history. Homeownership is the perfect way to build wealth and increase your financial stability for the future.