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Homeownership is the goal of many people as they navigate their lives. Whether you are single, married, or in a committed relationship, owning a home can provide you with plenty of benefits. As often as people say that homeownership isn’t all it’s cracked up to be, it is a financial goal you should set for yourself for a variety of reasons.
Tax Deductions for Being a Homeowner
One of the biggest benefits of owning a home is that it provides tax deductions. Homeowners can receive tax deductions for the interest paid on their mortgages and for their property taxes. This deduction is a major benefit for homeowners, who spend the first handful of years owning a home paying the interest of the mortgage and not the principal.
In the first year of homeownership, you will be able to deduct the points on your mortgage. This is especially helpful for homeowners who have a lot of points on their mortgage. Mortgage points can be purchased to help reduce the interest rate of the mortgage, but they increase your closing costs. If you claimed a lot of points, listing these on your taxes in the first year of homeownership can help you save a lot of money.
Should you decide to refinance your mortgage down the road after building up equity in your home, or if you acquire a home equity loan, the interest from these can be deducted from your taxes no matter how long you’ve owned the home.
Accrue Equity in the Home
Each month when you make a payment to the lender that holds your mortgage, you acquire another piece of the home. This benefit alone makes owning a home a financial goal you should set early in life. If you are renting an apartment, condominium, or home, you might be paying the same monthly amount as a mortgage but do not own any stake in the property.
Equity in a home accrues in two different ways and often at the same time. The first is accrued as the value of your home increases. The second is accrued as more of your mortgage is paid down each month. This means that after the first handful of years of homeownership, you are actively investing in your home. Many people call paying a mortgage “forced savings.”
You can accrue more equity at a quicker rate by doing a couple of different things, including the following:
- Pay more than you owe on your mortgage each month.
- Conduct routine maintenance and improve your home to increase its value.
- Accept financing with a mortgage that has a shorter term.
Homeownership Can Help You Meet Other Financial Goals
Believe it or not, having a mortgage that you pay on time every month is considered good debt. Your parents, teachers, and advisors might have told you that there is no such thing as good debt, but a mortgage certainly fits into this category. The catch is that you need to own a home that you can actually afford so it can help you meet other financial goals.
Having a mortgage that is paid on time every month can improve your credit score, help you obtain other loans (school, car, business, credit cards, etc.), and might even lower the monthly premiums you pay for your car insurance.
More Control Over Your Monthly Budget
Owning a home provides you with more control over your monthly budget. If you rent, the amount you owe each month is likely to change. Rent is a variable that increases with inflation. When you secure a mortgage, you know what your monthly payment will be until the mortgage is paid in full.
You are locked into an interest rate that will not change for the life of the mortgage unless you decide to refinance for a lower rate. The interest rate will never go up, which means your monthly payments remain the same unless you pay property taxes along with your mortgage payment. This still provides you with plenty of control over your monthly budget. You know almost exactly what the monthly payment will be for your home, providing you with more wiggle room elsewhere in the budget.
Homeownership Can Aid in Your Retirement
Another benefit of being a homeowner is that it can aid in your retirement. As you get closer to retirement age, the monthly payment you are making on your mortgage should be relatively small when compared to your income, savings, and other assets you’ve acquired throughout your life.
Not every person who retires decides to sell their home. Some remain in their forever home for the rest of their lives. Others move out of the home, rent it to someone else, and move into a vacation home full-time. Then, some retirees sell their forever homes and use the cash to travel or purchase or to rent a smaller home.
What is the Process of Buying a New Construction Home?
If you haven’t purchased your first home yet, you likely don’t know how the process works for a new construction home. Getting your feet wet in the homeownership world is scary, but if you know how the process works ahead of time, you should reduce some of the stress associated with it. The general process for buying a home that is considered new construction is as follows:
- Find a builder
- Sign a contract
- Choose the location of the home (if it is not already determined in a development)
- Pick a floor plan that works for your family
- Design the interior
- Have the property appraised
- Review the documents
- Wait for final inspection
- Move into your new home
Why Aren’t Millennials Buying Homes?
Millennials get a bad rap for a lot of things, including not buying homes. Fannie Mae conducted a survey in 2019 that found 55% of millennials and members of Generation Z are not buying homes because they say that homeownership is not financially viable. Existing debt (student loans) and the rising cost of owning a home are two of the main factors preventing millennials from entering the homeownership market.
Another reason why millennials aren’t buying homes is that there are tighter standards these days for acquiring loans. To apply for a mortgage, you must provide the following documents:
- Proof of income
- Tax returns
- Credit history
- Bank statements
- Records of other assets
- Down payment gift letters
Other millennials claim that they don’t need the space that a home provides. Millennials are marrying at lower rates than previous generations. The median age for first-time married people has also increased of late.
Start the Home Buying Process
Now that you have a better understanding of how the home buying process works and why it’s important to own a home for your financial future, you can begin the process of finding your forever home.