When you buy your first home, you have to make financial sacrifices to save for the down payment, so you may wonder if those sacrifices are worth it. The truth is, they are.
Here are four big benefits of owning your own home.
Homeownership helps build wealth. Your down payment is the start of your equity in the home. Then, each monthly mortgage payment adds to that equity, by paying off some of the loan principal. When you pay off the mortgage, you own the home free and clear, an asset that may be worth hundreds of thousands of dollars. As a renter, you just keep paying money month after month without getting richer. Homes can also appreciate in value. If you buy a home for $$300,000 and its value increases to $350,000, your wealth has grown by $50,000. You can’t count on your home going up in value, but many homeowners have seen their values increase substantially over time.
The Federal Reserve’s latest study, through 2019, found that homeowners have forty times higher net worth than renters $255,000 versus $6,300 — and that difference continues to grow. A study by CoreLogic reported the average homeowner equity grew by $26,300 in the prior 12 months. And this difference in net worth between homeowners and renters holds true regardless of income level, according to a study by First American.
This makes a big difference later in life. Harvard’s Joint Center for Housing Studies reports the median homeowner aged 65 and over had a “net wealth of $319,200,” while “the net wealth of the same-age renter was just $6,700.”
You control when you move. As a renter, you always face the possibility your lease won’t be renewed. The landlord could sell, or convert the units to condos or co-ops you’d have to buy in order to stay. Or your landlord could lose the property in foreclosure. Any of these circumstances could force you to move when you don’t want
to. As a homeowner, this is far less likely. It could happen if you lose your job and can’t make mortgage payments, but you can avoid that by saving money in an emergency fund to cover such a possibility.
Your monthly payments should remain stable. It’s common for rents to go up over time. But if you’re a homeowner with a fixed-rate mortgage, your principal and interest monthly payments will stay the same for the life of the loan.
You can customize. If you don’t violate zoning laws or homeowners association rules, you can tailor your home to suit your needs. Landlords often restrict tenant changes, and, anyway, why would you want to improve a property you don’t own?
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