Buying a home is a big decision. Knowing when the timing is right and if you should buy a home requires an understanding of how the process works and how you would benefit. While it’s normal to be nervous about buying a home, the more you know, the less overwhelming the process is.
If you’re unsure about buying a home, here are X reasons to consider it.
Reasons you Should Buy a Home
Equity is the difference between the home’s value and your mortgage balance. When you own a home, you earn equity in two ways:
- Every time you pay your mortgage balance down, your equity increases. It won’t seem like much at first, but as you own the home for a few years, you’ll pay the principal balance down faster.
- The home will naturally appreciate through the years. Even without you improving the home (although that helps too), the home’s value will increase, giving you more equity.
Investing in a home is a lot less expensive than investing in the stock market or any other asset because of leverage. Typically you need just 3 – 3.5% down if you’re a first-time homebuyer, but you can invest in a home worth hundreds of thousands of dollars.
Homeowners may be eligible for many tax benefits, of which the two most common are:
- Mortgage interest – Every month you’ll make principal and interest mortgage payments. While you can’t write off the principal (the amount you borrowed), you can claim the interest paid for the year.
- Property taxes – Every homeowner pays property taxes. Every state has different tax rates, but everyone can write the expenses off on their tax returns.
These tax benefits only apply if you itemize your deductions, though. If you take the standard deduction, you won’t write off mortgage interest or property taxes.
Capital Gains Exclusion
If you live in the home for 2 of the previous 5 years you owned it, and then sell the property, you don’t pay capital gains taxes on the first $250,000 in capital gains if you’re single or $500,000 if you’re married filing jointly.
This is a great way to avoid tax liabilities on your investments, especially if you plan to move often. If you had capital gains of $250,000 in the stock market, for example, it would increase your tax liability greatly.
When Should you Buy a Home?
Right now is a great time to buy a home. Interest rates are lower than they’ve been in decades, making it more affordable for everyone to buy a home.
Before you do, ask yourself:
- Is your job/income stable?
- Can you make the mortgage payments on time without stressing your budget?
- Are you going to stay in the area for at least a few years?
- Can you handle the responsibilities of owning a home including paying the property taxes and home insurance?
Only you know when you should buy a home. Looking at the benefits above, do they speak to you? Does it feel like it’s time to stop renting? If you’re ready to explore your options to buy a home, let’s connect today!