The decision to buy or rent your home can be challenging. Homeownership has traditionally been an important way to build wealth. A view held by the majority of Americans: 84% believe that buying a home is a good financial decision.1
Owning a median-priced, three-bedroom home is more affordable than renting a three-bedroom property in most U.S. counties.2 Even in cities where housing prices are high, with interest rates at historic lows, owning a home can still be the more affordable option long-term.
Here are four reasons why purchasing a home can be a smart financial decision.
Build Personal Wealth
The most recent Survey of Consumer Finances showed that the average homeowner has a household wealth of $254,900, while the average renter has a household wealth of $6,270. This means that the net worth of a homeowner is over 40 times greater than that of a renter!
Homeownership rates peak at or near retirement ages, suggesting that buying a home provides long-term financial stability and the foundation for a comfortable retirement.
When you rent a home, your monthly payments can help you build credit. However, your rent money is going to your landlord. When you own a home, your monthly mortgage payments enable you to build equity over time, which increases your net worth.
Home prices are currently rising faster than rents in 63% of the U.S. housing markets.3 In the third quarter of 2020, U.S. homeowners with mortgages (roughly 63% of all homeowners) collectively saw their equity increase by 10.8% year over year.4 This amount averages to an increase of $17,000 per homeowner! What’s more, home prices are forecast to increase by 2.5% from November 2020 to November 20214, which means with each monthly mortgage payment, you’ll be earning additional equity in your home.
Stable Housing Payments
For the past few years, rent payments for a single-family home have increased 3-4% each year.5 Currently, mortgage rates are at historic lows. Buying a home with a fixed-rate mortgage will enable you to lock in the interest rate, so your monthly mortgage payment will remain the same for the duration of your mortgage term.
In the tax world, there are deductions, and there are credits. Credits represent money taken off of your tax bill. A tax deduction reduces your adjusted gross income, which in turn reduces your tax liability.
Most of the favorable tax treatments that come from owning a home are in the form of deductions. Mortgage interest, real estate or property taxes, Private Mortgage Insurance (PMI), and other origination fees may be deductible on your income taxes. A professional tax accountant can advise you on how to deduct these payments.
Some states and counties offer a reduction in annual property tax through the Homestead Exemption program if the house is your primary residence. Learn how to file for a Homestead Exemption.
1 National Association of Realtors Housing Pulse Survey
2 ATTOM Data Solutions 2021 Rental Affordability Report
3 CoreLogic Home Price Index (HPI®) Report
4 CoreLogic Home Equity Report
5 CoreLogic Single-Family Rent Index