Should you rent or buy? Pros and Cons...
Homeownership brings with it many responsibilities, and when you are fixing your own plumbing or a leak in the roof, you might look more fondly on your rental days. Then tax time rolls around and reminds you of the real benefits that come with owning your own home. Here are the top 7:
1. Don’t Let the Recent Market Fool You - Homeownership Still Builds Wealth
The bursting of the real estate bubble has shaken everyone’s confidence in homeownership. The mistake was that people bought more house than they could afford. It does not change the fact that responsible homeownership can still build wealth. Buy what you can afford and stay with that home for the long run for the best return.
2. Equity - Need We Say More?
Equity is the amount of money you can sell your home for minus what you still owe on it. As you pay your mortgage over the years the principal portion of your payment increases slightly every month year after year. It’s lowest on your first payment and highest on your last payment. Thus, as the months and years go by, your equity grows! With equity, you can take out a credit line with much lower rates than a credit card.
3. Take Advantage of Tax Deductions Available Only to Homeowners
- Mortgage deduction: The United States tax code allows you to deduct the mortgage interest from your tax obligations. This can be huge, since interest payments can be the largest component of your mortgage payment in the early years of owning a home.
- Some closing cost deductions: The first year you buy your home, you are able to claim the points (also called origination fees) on your loan, no matter whether they are paid by you or the seller. And because origination fees of 1 percent or more are common, the savings are considerable.
- Property tax is deductible: Real estate property taxes paid on your primary residence and a vacation home are fully deductible for income tax purposes.
4. Tax Deductions on Home Equity Lines
In addition to your mortgage interest, you can deduct the interest you pay on a home equity loan. You would be allowed to shift your credit card debts to your home equity loan, pay a lower interest rate than the credit card interest rates, and get a deduction on the interest as well.
5. You Get a Capital Gains Exclusion
In other words If you buy a home to live in as your primary residence for more than two years then when you sell, you can keep profits up to $250,000 if you are single, or $500,000 if you are married, and not owe any capital gains taxes. Even with the falling prices of homes in the last few years, it is possible that your home may have appreciated. If you purchased your home anytime prior to 2003, chances are that it has indeed appreciated in value and this is a tax benefit worth keeping in mind.
6. A Mortgage Is A Savings Plan for the Less Disciplined
Let’s face it, saving money is hard. Just when you have some cash put away, it seems as if there is a major repair to make or some other event comes along to take it away. Paying that mortgage every month and reducing the amount of your principal is like a forced savings plan. Each month you are building up more valuable equity in your home. In a sense, you are being forced to save—and you don’t even miss the money.
7. Long Term, Buying Is Cheaper than Renting
Renting can be tempting, but if you stick with it the interest portion of your mortgage payment decreases and soon the interest is lower than what you would pay in rent. Best of all, you are building equity in your home, saving money and instead of paying off your landlord’s mortgage, you are paying off your own.