One of the key factors in your decision related to buying a home in Arizona is knowing the benefits of home ownership.
If you are deciding if you should buy a home, you want to know the financial and social benefits of home ownership.
What Are the Benefits of Home Ownership?
Pride in Home Ownership
There is a special kind of pride in home ownership that you just won’t get by renting. When you buy a home, you experience a sense of accomplishment. You worked hard to be able to buy your home and now you can make it your own. You can furnish it the way you want and you can decorate it to your liking. You can maintain it and keep it beautiful. Your home becomes an extension of who you are and you take pride in owning your home. The results of one recent survey indicated that Americans believe that owning their own home is as important as being successful at their job.
Stability and Security
Your home is a place to call your own. It is your shelter in more ways than one. It provides protection against both physical and non-physical elements. Among the social benefits of home ownership is the fact that owning a home can provide a feeling of comfort and stability. You gain a feeling of belonging and sense of community as you plant roots and create strong ties with your family, friends and neighbors.
Because You Own Your Home, You Can Tailor It to Make It Yours
It’s your home. You can do what you want to it. This is a pretty simple concept, but it is significantly different from renting. If you want to repaint, you can. If you want to install different flooring, you can. If you want to remodel the home, you can. If you want to put in a pool, you can. You’re only limited by your budget, your local building codes and possibly your home owners association.
Owning Can Be Cheaper Than Renting
When you buy a home, you decide what you can afford and how much you want to put down. Most people finance their home and have a monthly payment. If you have a fixed-rate mortgage, then your principal and interest payments will never go up. Furthermore, over the life of the loan, the amount that you pay in monthly interest will decrease as you pay down the loan. On the other hand, the market level for rental payments typically increases year over year.
Owning A Home Builds Wealth
“Homeownership plays a pivotal role in the U.S. economy and has historically been one of the primary sources of wealth accumulation for middle class families,” – Lawrence Yun, NAR Chief Economist
Look at the Buy versus Rent example provided in Step 1: SHOULD YOU BUY A HOME IN ARIZONA? of this series.
In that example it showed that renting this home in Avondale, Arizona would result in rent payments of close to $70,000 over 5 years with no return and no wealth creation. However, if you bought the same home, with a purchase price of $154,600, your mortgage payments over 5 years would likely be a little less (yes, owning can be cheaper than renting). However, you would have over $52,000 in equity. That is your money! Plus, in that example, owning the home resulted in an additional $11,000 in tax deductions.
With that said, it is likely that either you or someone you know lost their home – or their equity – in the past decade’s financial crisis. Many people learned that home values don’t always go up. Home values fluctuate; they go up, down and stay flat. Nevertheless, most people agree that, even when adjusting for inflation, home values increase to over time.
Even if you believe you can’t count on appreciation, you can still think of your home as a forced long-term savings plan. When you pay your mortgage every month, a portion of the payment reduces the amount that you owe. This monthly reduction of your mortgage increases your equity. Eventually, you should be able to pay off your home and you will no longer have a mortgage payment.
Home Ownership Has Tax Benefits
If you want to know for certain what tax advantages you will have by owning a home, you should speak to your personal CPA or tax advisor. When you do, here is a short list of the benefits of home ownership that you should ask her or him about:
Mortgage Interest Deduction: Typically, you are allowed to deduct the mortgage interest that you pay from your taxes owed. If you pay points to buy down your interest rate, they may be deducted too. Finally, if later on you choose to obtain a loan against your home to do home improvements, the interest on that loan may be deductible too.
Property Taxes: To avoid double taxation, property taxes that you pay on your home is typically fully deductible from your federal income taxes.
Home Office Deduction: If you use a portion of the home exclusively for an office for your work or small business, you may be able to deduct certain home expenses from your taxes.
Capital Gains Exclusion: If, after living in your home for two years (two out of the last five to be precise), you sell your house for a gain, you may be able to keep the profits as tax-free income. There are restrictions that apply, but they are fairly generous to the average American.
Other Limited Benefits: There are a few other tax benefits for which you may be eligible depending on where you live, how you bought your home, if you have private mortgage insurance or if your house has certain energy-saving systems (ex. solar panels). These benefits are often restricted and/or temporary so you need to do your homework.
You can find Tax Information for Homeowners from the IRS here.
This home buyer series is intended to provide general information regarding the process of how to buy a house in Arizona. It is not intended to provide buyers with legal, accounting or financial advice. You are advised to seek the services of a skilled professional this those fields.
Additionally, this home buyer series does not set forth all qualification criteria for any of the loans described herein; all interested persons must successfully meet qualification criteria and complete the application process to obtain such loans.