Owning their own home means a lot to most people. Homeownership remains the number one dream for many American families. It introduces a level of stability into your life that is just not possible when you are a renter. Homeowners enjoy superior social status and have the joy that comes from seeing a long-held dream fulfilled. But what about the financial benefits of home ownership?
Even if these were the only benefits of being a homeowner, most people would still make owning their own home a priority and put in the work to reach that goal. But happily, several other benefits accrue to you when you become a proud owner of your own house. Let us look at some of the lesser-known ways home ownership can impact your finances.
8 Financial Benefits of Home Ownership
1. Substantial return on investment
The land’s value and the structures on it appreciate because of the limited supply. Moreover, the value of land depends on its utility. That means it serves a real purpose; people will always need land to live on, and businesses need premises for their operations.
As the quantity of land available everywhere shrinks, the value of land, including yours, keeps increasing. This is one of the key financial benefits of home ownership. Because even if the housing price falls in the short term because of economic factors, home values increase in the long run. Therefore we see a great long-term return on investment with real estate.
2. Forced long-term savings
The monthly mortgage payments on your home effectively amount to forced savings. Without the obligation to make these monthly payments, that money will go into other things that do not offer long-term value. But by investing in a property, you force financial discipline on yourself. It lets you build an asset that will keep providing value throughout your life and beyond. People who have their homes have a higher net worth, and they can exploit that net worth in ways that we will explain later.
3. Building generational wealth
Families that maintain a generational fortune invest most of their wealth in real estate. That is because the property is an asset class that retains its value for generations. A free and clear property is something you can leave to your children to give them a head start in life. One single home can serve as the foundation for building generational wealth.
4. Hedging against inflation
Your home protects your money from the ill effects of inflation. Every single dollar you pay in a mortgage not only retains but increases its value. That is because inflation will erode the value of any money you leave in the bank. But when you put that money into an asset like real estate, you preserve the value of that money. Its value will increase at a pace ahead of the inflation rate. Owning your own home also protects you from paying ever-increasing rent as a tenant.
Stability is one of the most important reasons people feel like they have to own their own homes. When you own your own house, you impose a different mindset on yourself. Instead of the uncertainty that keeps you from making long-term plans, the fact that you know you are not going to move any time soon gives you a reason to plan. That is why people who own their own homes often go forward to build more wealth than those who decide to live in a rented space.
6. Build a strong credit history
One of the most vital indicators of your financial trustworthiness is the ability to make payments on your home consistently. Your credit history and score spread throughout all aspects of your economic life. It can limit your opportunities or open massive doors for you. There is no better way to build your credit history than to buy a home and never default on the mortgage. As explained at the end of this article, you can use your home as the basis for acquiring rental properties, but your credit score is a big part of this.
7. Tax benefits of owning a home
Taxes constitute a leading part of most people’s expenses, but there are crucial ways you can save on taxes when you are a homeowner. As long as the value of your home does not exceed $1 million, you can write off the interest paid on the mortgage. You can also make deductions on property taxes and, possibly, on private mortgage insurance. Essentially, tax deductions are incentives the government uses to encourage more people to own their own homes.
8. Become a property investor
Finally, you can use your home to acquire rental properties. If you have built up substantial equity in your home, you can avoid the trouble of saving up money to make the down payment on a rental home. That is because lenders will let you borrow on the equity on your home – up to 80% of its value. Many homeowners have used this path to become landlords, and you can do so too.