If you are looking for a way to grow your wealth over the long term, buying your own home can be a great step.
In fact, buying a home of your own can actually help you build wealth in multiple ways. Let’s take a look at how this decision can change your financial life for the better over the years ahead.
What Financial Benefits Does Purchasing a Home Have?
- You have to save money. Your mortgage is a forced savings plan. For one thing, when you purchase a home, you have no choice but to save money every month, stowing it away in your home as the investment vehicle. This is quite different from paying rent, as rent payments simply disappear down a drain, never to be seen again. When you rent you are paying your landlords mortgage. The money you pay towards your home doesn’t go away. The home is yours, so that wealth remains with you. For many first time homeowners, having to pay a mortgage and juggle the other expenses of homeownership is what teaches them for the first time to maintain an effective budget. When you begin keeping a budget and planning toward the future, you get better at saving all around.
- There are tax advantages to investing in a home. Another financial advantage of homeownership is that it might reduce your bill to Uncle Sam. Depending on your individual situation, it is possible you can qualify for certain tax deductions for your interest, closing costs, and even property taxes. The less you pay in taxes, the more you keep for yourself, growing your wealth.
- Your home might increase in value. When you buy a home you might put down a down payment of 3-20% but your entire home value appreciates. This is leverage. If you purchase for $500,000 using 10% ($50,000) for a down payment and assuming the national home appreciation average of 3.5% your home value would be increasing at $17,500 per year on your $50,000 down payment. Obviously you will also have to factor in monthly mortgage payments in place of your monthly rent payment and upkeep on your home. Many homes rise in value after they are purchased. When you sell your home in the future, you can collect the difference in value. You can then either put that money toward the purchase of a new and better home, or you can save or invest it.
- What you pay on your home can be more predictable. When you are paying rent on an apartment, the amount of your rent may not be particularly stable rising over the years. You might be used to the amount going up periodically until you are forced to move and try and find cheaper rent elsewhere. Moving is expensive in and of itself, further draining the money you could be putting toward savings or investments. If you purchase a home using a fixed rate mortgage, you do not have to worry about the cost of your mortgage increasing in this way. Home owners can also pay off their mortgage entirely if they own their home long enough or prepay their mortgage eliminating their mortgage payment altogether. That never happens if you rent. That being said, if your home increases in value and is assessed at a higher worth, it is possible for your property taxes or home insurance to go up. But those costs are typically a small portion of your monthly payment.
- You can use the equity later if you need it. One more way in which you cultivate wealth as a homeowner is in the form of home equity. Even though your equity is not especially liquid, you can tap into it using various lending products. You might even be able to borrower against you home to invest or buy another home or investment property. Among those is a reverse mortgage, which is a product for seniors. With this product, you can borrow against your equity, but you do not have to pay back the loan until a maturity event. Such an event could include the death of the last borrower or the sale of the home. So, just having significant home equity can open the door to a large quality of life improvement in your retirement years. That is an opportunity renters will never have.
- You build wealth in other ways. Finally, buying a home can increase your financial wealth, but not all wealth is financial. Owning your own home gives you a level of freedom you would never experience as a renter, as well as the reassuring knowledge that the place you live truly belongs to you. You may feel a sense of pride and accomplishment as a homeowner; it can be one of life’s major milestones that tells you that you have “made it.” So, owning a home enriches you emotionally.
Let Blue Square Mortgage Help You Build Wealth with a Competitive Home Loan
Buying a home could potentially be one of the best investments you ever make in your future.
If you are ready to purchase a home today with a flexible loan, please give us a call at (206) 352-6453. We work with homebuyers throughout Washington State and Colorado. When you tell us about your financial scenario and goals, we can match you with a mortgage product that will help you to maximize your wealth through your investment in your home.
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