Purchasing a home is a big decision, and quite honestly, probably one of the biggest decisions you will ever make, especially if you are a first-time homebuyer! Maybe you have listened to the advice of friends, family, and co-workers, many of whom are likely encouraging you to buy a home. However, you may still wonder whether buying a home is the right thing for you to do. Having reservations is normal. The more you know about why you should buy a home, the less scary the entire process will be. It's also important to know who you are working with and to choose the right team.
Here are 8 good reasons why you should buy a home.
Other than just pride of ownership another benefit is that although real estate values move in cycles, housing values have consistently appreciated. The Federal Housing Finance Agency tracks the movements of single- family home values across the country. You can track how home values have increased over time with its House Price Index. Many people view their investment as a hedge against inflation.
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2. Mortgage Interest Deductions
Fun fact! Homeownership is a superb tax shelter and tax rates favor homeowners!!! Did you know that if your mortgage balance is smaller than the price of you home, mortgage interest is fully deductible on your tax return? For a large portion of the time, you pay down your mortgage, interest is the largest component of your mortgage payment.
3. Property Tax Deductions
IRS Publication 530 contains tax information for first-time homebuyers. In general, you can deduct state and local real estate taxes. Most homeowners pay their property taxes as part of their monthly mortgage payments. To take advantage of the interest and property tax deductions, you must itemize your deductions. With the higher standard deduction that went into effect under the 2017 Tax Cuts and Jobs Act, homeowners may find the standard deduction more advantageous. Most taxpayers will pay 15%, or at most 20%, in capital gains taxes. That's compared to the income tax rate, which is 22% or more for most taxpayers.
4. Preferential Tax Treatment
If you receive more profit than the allowable exclusion upon sale of your home, that profit will be considered capital gains once you have owned your home for more than a year. Capital gains receive preferential tax treatment compared to income tax. This means that even if your profit exceeds the exclusion, the taxable portion will be much less than you might imagine.
5. Capital Gains Exclusions
You must meet both the ownership and use test (from the tax code). You must have used and lived in the home (as your main residence) for at least two years out of the five years before the date of the sale. The use test and the ownership test don't have to be during the same two years. However, both must be within the five-year period.
6. Mortgage Reduction Builds Equity
Did you know that every month, part of your monthly payment is applied to your loan’s principal balance, which in turn reduces your obligation. This is called amortization. The way it works is more of your payment goes toward the principal and less to interest each month. The amount of your payment going toward the principal is the lowest on your first payment and the highest on your last payment. The longer you are in the home, the more equity you are building with each payment. Pretty cool right?!
7. Equity Loans
Consumers who carry credit card balances cannot deduct the interest paid, which can cost as much as 18%-22%. Equity loan interest is often much less. For homeowners who have built up equity, it makes sense to pay off consumer debt with a home equity loan! In the past you were able to deduct the interest paid on home equity loans on your taxes, the Tax Cuts and Job Act of 2017 suspended the deduction unless you use the funds to buy, build, or substantially improve the home that secures the loan. Some state laws restrict home equity loans.
8. Pride of Ownership
Pride of ownership may be the number one reason people enjoy owning their own home. It is yours. Owning it means you can literally do whatever you want to do with it including turning your music up, painting the walls whatever color you want, changing out fixtures to your taste, and decorating it to your liking. By owning a home, you also get a sense of stability and security. You truly are making one of the smartest investments to help you in the future, equity that will grow with you the longer you are in the home!
Home ownership brings many responsibilities, and it's wise to make sure you're ready before you buy for the first time. But as you can see, it has a lot of benefits. Our AWay Home Loans team has over 20 years of experience and would love to help you learn more about the process if you are considering buying your first home. Make sure that once you decide you are ready to invest in yourself and your future, reach out to our team first to get pre-approved and see what you qualify for!
-Your AWay Home Loans Team