During National Homeownership Month, I would like to highlight the 3 major benefits to homeownership which fall into the categories of financial, social and tax benefits.
Before explaining the benefits further, let’s first gain a basic understanding of the homeownership landscape in the U.S.
According to an article by the Department of Housing & Urban Development, the U.S. homeownership rate is 63.7 percent. The average first-time homebuyer is about 33 years old and approximately 80 percent of the 41.4 million Americans age 65 and older own their home.
Every state has a homeownership rate of at least 50%, however, West Virginia, Michigan, New Hampshire, Delaware, and Maine have the highest homeownership rate, at 70 percent or higher. And, the housing sector directly accounts for approximately 14 percent of total economic activity.
If nearly two-thirds of the U.S. population are homeowners, there must be something to it. Enter the BENEFITS OF HOMEOWNERSHIP.
Financial Benefits of Homeownership
Buying a home may be a significant investment up front, but homeownership builds wealth over time and in the long run, buying is more cost effective than renting.
1. Building Equity: Equity refers to the amount of value you have in a given asset. As you pay off your mortgage each month, you will be building equity in your home. This differs from paying rent because you will be contributing to a physical asset rather than making monthly payments to a landlord. This is why purchasing a home is often thought to be a financially savvy move.
2. Long-Term Savings: By building equity in your home, you are also setting aside money for your future. That’s because there are a number of ways to tap into your home’s equity down the road. Therefore, by buying a home you are promoting financial stability.
3. Building Wealth: As your property increases in value, so does your equity, giving you the opportunity to sell for a profit. You could use that extra money to reinvest in a new home as well as an investment property. Additionally, you could use your home to build wealth right away by using it as a rental property.
According to the most recent Federal Reserve Survey of Consumer Finances (2013), in the past 15 years, the net worth of the typical homeowner has ranged between 31 and 46 times that of the net worth of the typical renter. Data shows that median homeowners had nearly $200,000 in net worth or 36 times that of the median renter who had just over $5,000.
Social Benefits Of Homeownership
There are a number of social benefits of homeownership including better physical and psychological health. Here are just a few social benefits of homeownership to consider:
1. Civic Participation: When compared to renters, homeowners will often remain in one area for longer periods of time, adding a certain degree of stability to the neighborhood. Homeowners are also more likely to contribute to the maintenance of their properties and surrounding areas. This then translates to increased incentives to participate in local politics and community organizations, potentially leading to an overall increase in civic participation.
2. Financial Education: One little-known perk of homeownership is that, oftentimes, the financial knowledge that comes with buying a home will be passed onto future generations. By demonstrating the financial skills required to handle mortgage payments, parents can help prepare their children for a number of financial decisions.
3. Health Benefits: A study from the NAR (National Association of Realtors) shows that homeowners have higher self-rated health when compared to non-homeowners. This study also showed homeowners have higher perceived control over their lives, and higher rates of self-esteem and happiness when compared to renters.
- Lower Crime Rates: Homeowners often have more incentives to deter neighborhood crime when compared to renters because of their ties to a given area.
Property Improvements: One of the biggest benefits of homeownership is that it offers the freedom of customization. Homeowners can complete renovations to make the house exactly as they want, which could boost the value of the property in the process. Additionally, as a whole, owner-occupant housing is often better maintained than rental properties—creating yet another benefit of homeownership.
Tax Benefits Of Homeownership
Owning a home has positive tax implications for many homeowners, and can often reduce tax burden. Your mortgage interest and property tax payments may be deductible from your federal taxes, as well as many state taxes.
1. Mortgage Interest Deduction: Any interest paid on a home mortgage is tax deductible. This means homeowners can reduce their taxable income by deducting the interest paid on a mortgage.
Property Tax Deduction: Depending on your jurisdiction, there are also property tax deductions to be aware of. Homeowners may be able to reduce their taxable income further by deducting property tax.
Imputed Rent: Imputed rent refers to the idea that by owning a home you are acting as your own landlord; however, landlords are taxed on rental income while homeowners are not. This means by owning and living in your own home, you are avoiding paying taxes on rental income.
Profits From Home Sales: Homeowners may be exempt from up to $250,000 after selling a property due to an exemption in the capital gains tax. There are certain eligibility requirements, but generally through this tax homeowners can benefit from the profits of selling their home.
Homeownership is an American value and the cornerstone of our economy. Responsible homeownership is the key to building wealth.
Contact me to start the conversation about homeownership or to get the ball rolling if you are ready to invest in your future.