Top 5 Benefits of Home Ownership
With mortgage interest rates at historic lows and with daily reports of a built-up demand for housing, owning a home is what many individuals and families aspire to do. In the interest of providing you with a positive financial news I am presenting a list of the top 5 benefits of home ownership. The list consists of a mix of financial, emotional and psychological attributes. My comments in this post are geared to owning a primary residence and not second homes or investment properties.
Owning a home is part of the American Dream. Whether you desire a log cabin in the woods, a tiny house, a houseboat, a suburban home with a white picket fence, or a condo in the city, owning a home is what most people desire. In fact, according to the U.S. Census Bureau’s first quarter 2020 report, (census.gov) — 65.3% of Americans own their own home. Becoming a homeowner can be an interesting journey from saving up enough money for a down payment, keeping up with the mortgage payments to the ongoing costs of maintenance and home improvements. My experience is that the journey is worth it despite the ups and downs that could happen.
Here are the FinancialVerse’s Top 5 Benefits of Home Ownership:
Psychological Peace of Mind To me, owning a home and having a permanent base for yourself or your family provides a sense of security, safety and permanence for all individuals in the family unit. The National Association of Realtors (NAR) website, nahb.org links to studies and reports that make some significant claims about the benefits of home ownership, including:
Better mental and physical health
Improved community engagement
Higher educational attainments for the children of homeowners
Visit the NAR site for a wealth of information about all aspects of home ownership. For me, however, the most important reason to own real estate is to have that permanent base I control that every family member can return to each day as a refuge from the realities of today’s world.
Home ownership also imparts freedom. You can decorate as you want, have the pets you want, arrange your furniture as you see fit, paint with whatever colors you want (within reason) and live day-to-day as you please. There’s no landlord to tell you those aren’t allowed.
2. Buying A House Is Generally A Good Investment
Whether or not buying a home is a good investment depends on a number of factors, including your family situation, where you live, and housing costs in your area. Please seek out the advice of a qualified real estate and financial professional before making what will likely be the biggest purchase in your life. Historically, in most areas of the country home ownership has been a viable long-term investment that has proven less volatile than other asset classes.
3. Houses Come with Government Provided Tax Breaks
Congress has provided a variety of tax benefits to incent home ownership. I will highlight the major items but please know there are restrictions and limitations in the tax code that you will need to understand. Seek professional tax advice to fully understand the amounts, restrictions and availability of tax benefits in your personal situation. The major tax benefits include:
Mortgage interest is generally tax deductible. For 2020, taxpayers can deduct mortgage interest on up to $750,000 in principal. The debt, however, must be "qualified personal residence debt," which generally means the mortgage is backed by either a primary residence or by home equity debt that was used to substantially improve the primary residence. Home equity debt that was incurred for any other reason than making improvements to your home is not eligible for the deduction. See IRS Publication 936 for detailed information.
Mortgage points are usually deductible. You usually have to pay "points" to the lender when you take out a mortgage. In most cases, the points you pay on a loan to buy or build are fully deductible in the year you pay them.
Mortgage insurance premiums are usually deductible. Homeowners who pay private mortgage insurance on loans originated after 2006 can deduct their premiums if they itemize. (PMI is usually charged if you put down less than 20% when you buy a home.) The deduction is phased out if your adjusted gross income exceeds $100,000 and disappears if your AGI exceeds $109,000 ($50,000 and $54,500, respectively, if you're married but file a separate return).
Real estate taxes may also be deductible. As a homeowner, one of the additional taxes you're going to have to get used to paying is your local real estate or property tax. The good news is that you might be able to deduct the state and local property taxes you pay on your federal income tax return. There are, however, a few wrinkles that can limit the amount of this deduction. First, you have to itemize in order to deduct real estate property taxes. Second, there's a $10,000 limit ($5,000 if you're married but filing a separate return) on the combined amount of state and local income, sales and property taxes you can deduct. Anything over $10,000 is not deductible. That hits homeowners particularly hard in certain high tax states such as New York, California and New Jersey.
Tax credits for energy-saving improvements. To encourage the use of renewable energy sources, Uncle Sam will reward you with certain tax credit if you install certain energy-efficient equipment in your home. See IRS Form 5695 and related instructions for limits and restrictions.
You get capital gain exclusion and tax treatment when selling your home. The IRS has a special provision for you when you sell your home: You probably won't have to pay taxes on all or part of the gain from the sale. Your home is considered a capital asset. Normally, you have to pay capital gains tax when you sell a capital asset for a profit. However, if you're married and file a joint return, you don't have to pay tax on up to $500,000 ($250,000 for single filers) of the gain from the sale of your home as long as you (1) owned the home for at least two of the past five years, (2) lived in the home for at least two of the past five years, and (3) haven't used this exclusion to shelter gain from a home sale in the last two years. See IRS Publication 523 for more information.
4. Improve Your Credit Score
Buying a house can improve your credit score, especially if you don’t have a long credit history or many installment accounts. That’s because your mortgage — provided you pay it on time each month — can increase your credit score by showing that you have paid the obligation consistently over a number of years. Remember one of the most important considerations going into calculating your score is the length of credit history you have.
Since the length of a mortgage is typically 15 or 30 years, having a mortgage on your credit history is a great way to lengthen the average of your credit accounts. In addition to improving the average length of credit accounts, each and every month that a mortgage is paid on-time it shows that you’re a responsible borrower which not only can improve a credit score but also improves the chance of approval for future credit accounts.
5. Stable Monthly Payments
If you’re going to be buying a home by obtaining a mortgage, it’s highly likely that the mortgage product you’ll use for the purchase will be a fixed rate mortgage since they’re the most popular, particularly with today’s very low rates. With a fixed rate mortgage comes stable monthly payments, which is one of the best benefits of owning a home. Compare this to renting for a moment. One of the wildcards to renting a property is the unknown that comes with the monthly payments, year over year. It’s very plausible that the monthly rent payments for a property can change from year to year upon the renewal of a lease agreement.
The stable monthly payments that come with owning a home can provide some great peace of mind as it makes it easier to create a predictable monthly budget. Please note that monthly payments can change when owning a home if property taxes or homeowners insurance were to change, but the amount of change in property taxes is normally a very small amount.
Home ownership can bring you, your family and loved ones many benefits. Today I tried to highlight the top 5. In future posts I will present the other side of the coin — the negatives of home ownership — for your consideration. Good luck on your home ownership journey. To me there is nothing more important to my peace of mind than coming home each day to my loved ones in a space that I have designed and paid for.
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