Financial Benefits of Homeownership
The idea of homeownership has been part of the American Dream since day one. At the beginning of the 20th century, fewer than half of Americans owned their homes. This statistic held steady until the Great Depression when homeownership decreased.
Home equity is defined as "the value of a homeowner's interest in their home." In other words, a homeowner’s equity equals the property's current market value, less any liens or loans attached to the property. Equity will fluctuate over the years as mortgage payments are made and the market goes up and down. The more you pay down your mortgage, the more equity you have in your home.
Building equity in your home is building one of the largest long-term savings accounts for yourself and your family. The more you pay down your mortgage, the more home equity you build, which you can tap into later in life if you want or need to do so. Many people use home equity to supplement retirement savings, or they build their future retirement on the foundation of their home. Buying a home allows people to establish and grow financial stability.
In addition to long-term savings, homeownership also contributes to building wealth, both now and in the future. If you’ve done your research, analyzed the data, and purchased a good property, your property value should increase. As your home value increases, there will come the point when you may want to sell your home for a healthy profit, enabling you to buy a better house and a better piece of property. Ideally, you’ll continue making lucrative real estate decisions, leapfrogging upward through the real estate market, and building wealth over time.
Homeownership can help people control and manage their overall expenses. A mortgage is a fixed amount, so it influences homeowners to organize bills and costs, and plan for their financial future. When a future homeowner is reviewing a mortgage contract, they have the opportunity to sit down, analyze the potential monthly payments (and other costs) against their income, and create a budget and financial plan.
Build strong credit
Achieving an excellent credit score isn’t something that happens overnight. Making consistent mortgage payments over time helps to build a homeowner’s credit. A strong credit score will contribute to your financial well-being and future. Another benefit is that timely mortgage payments will set you up to receive promotional offers in other areas, like lower interest rates on car loans and credit cards, for example.
Homeownership has been an asset to home-owning taxpayers for years. There are a plethora of tax deductions and savings available to homeowners. While conducting your research, read up on the tax savings that will be available to you as a homeowner and how they’ll impact your financial plan. Check out the below list of the most common tax reductions for homeowners.
Mortgage Interest Deduction
The mortgage interest tax deduction has to do with any interest that is paid on a home. This allows homeowners to lower their taxable income by deducting the interest paid on the mortgage. Reducing your taxable income means more money in your pocket, and more available for future investing opportunities. This will help you to build your wealth and your financial well-being.
Property Tax Deductions
Property tax deductions are based upon your home's jurisdiction. Where your home and your property sit will determine if and how much your taxes will possibly be set. Having this knowledge in your arsenal will help you and the Somsel Team to successfully estimate your taxes and plan for your future, as well as your future financial wealth.
Imputed rent allows you to own and live in a home without paying taxes or rental income on it. Imputed rent is the rental price an individual would pay for the asset and protects the buyer from having to pay taxes on rental income by owning and living in your own home.
Last but Not Least
Profits by home sales are popular with homeowners as it offers them the opportunity to be exempt from up to $250,000 after selling a home due to the exemption in the capital gains tax. There are specific eligibility requirements that the IRS requires homeowners to file, however, generally through this tax break opportunity, homeowners can benefit from selling their homes. The more profit you can make on a home, the more money you have available to set up your financial future.
Homeownership is a valuable and important part of your financial plan and your financial well-being. As you progress through life, your priorities change, and building your wealth and financial security comes more to the forefront of your mind. Homeownership comes with a variety of pluses and minuses, yet, if your real estate decisions are carefully and thoroughly researched and thought out, the home you choose can contribute greatly to your financial well-being and prosperity. Homeownership can, in addition, help your financial dreams become a reality. Whether you are looking for a new home or a fixer-upper, homeownership can help you to build equity, build your credit, and build your financial wealth. The Somsel Team can help you to make informed, educated, data-based decisions on Sunset District real estate to ensure you get the most bang for your buck when it comes to investing, your home, and its contribution to your financial well-being.