Advantages to Owning Your Own Home

I apologize for not posting most of last week; I have been moving into a new house. We (when I say, “we” I mean my mom, my aunt, uncle, and two cousins) have been renting an apartment for a little over ten years now.

When we originally moved here, we weren’t sure how long we were going to stay, so we rented. As we were staying here, housing prices began to move toward its peak. At one point, the pricing around here just got ridiculous; there were tiny cockroach invest hovels costing half a million and up. Because of that, we decided to keep on renting. However, the $8,000 first time buyer tax credit combined with the current low housing prices caused us to reconsider buying a home.

For most of us normal folk (not the super rich), buying a house is generally the biggest investment that we’ll ever make. Luckily, there are a couple of financial advantages that come with it.


“Saving” in Your Home
Whether this really can be considered an advantage is actually debatable. When you start making monthly payments on a house, you begin to build what is known as equity, which is the value of an asset minus what you owe on it. Basically, you’re building value in your home so that if the need ever arises, you can borrow against it or sell it. The problem with this is that if you borrow against your house and fail to make the repayments, your home will be repossessed and you’ll be left without a place to live. If you sell your house, then you’ll have plenty of cash on hand, but once again, you’re without a roof over your head.

However, this does have its advantages over renting. When you make your mortgage payments, you build up your equity along with your net worth. When you make your monthly rent payments, you build your landlord’s wealth. You can decide for yourself who you want to make richer.


Stable (or at Least Predictable) Costs
When you rent, the landlord can decide to change the cost of rent to match inflation or rising housing costs. When the cost of rent goes up, there’s very little you can do against it aside from complain or move out.

One good thing about purchasing a home is that it provides you with a stable or predictable payment schedule. If you get a thirty year fixed mortgage, your monthly payments will stay the same month after month, for the full thirty years. If you get an adjustable rate mortgage, you’ll at the very least know the maximum amount you will ever end up paying on your home per month and possibly when the interest rate will go up . This way, when you create or revise your budget, you know how much to set aside for paying for a place to live. Also, should inflation ever go up, the dollar amount you pay will never change but the purchasing power will. So if inflation rises year after year (which has been happening for a long time) you’ll be paying off your house with devalued dollars, which is the same as paying a smaller amount.


Possible Appreciation in Value
As we’ve all seen from the bursting of the housing bubble that we’ve had not to long ago, the value of homes can go up. If the value of your home goes up faster than the rate of inflation, then your home has appreciated (gone up in value). This increase in value gives you more equity should you ever want to borrow against your home. The downside of this is, like we’ve seen from the housing bubble, the value of homes can also go down. However, if you’re not just buying a house to speculate or if you’re not borrowing against your home, this wouldn’t be something to worry too much about.


Tax Benefits
When you make monthly mortgage payments, you can take the amount you pay in interest and deduct that from your income tax. I don’t really consider this to be saving money since the amount that you would have paid in taxes just went to pay the interest in mortgage. But that aside, may help give some people peace of mind knowing that you won’t have to you’re not incurring the full cost of everything.

One might argue that when you buy a house, you have to pay property taxes whereas if you rent, you don’t. Technically, they’re right. When you rent, your landlord pays the property tax on the house. However, they get the money for the property tax from you by incorporating it into your rent. So although you may have a new expense/tax when owning a home, its one that you would have paid anyway when renting.


All this is not to say that owning a home is better than renting. Renting does certainly have its advantages. If you want help in deciding whether to rent or to buy, check out this calculator here from Dinky Town.