Home ownership: the benefits

Jun 29 2011

Home ownership: the benefits

Posted by Thomas Taylor in Finance News

Buying a home is the largest financial decision made by potential homeowners. The decision may be driven by emotions; however, it has a lot of benefits. These benefits include home equity and saving on taxes. Besides the benefits there also some challenges that come with homeownership, for example the upkeep.

Price appreciation

Price appreciation helps build home equity, the difference between the market price of the house and the remaining mortgage payments. Though, this differs from cities to cities. Telling how home prices will be like in coming years is not easy. Real estate market is very unpredictable.

Site

The site of the home plays a major role in home equity and wealth. Nonetheless, past rates of home price appreciation are not necessarily an accurate indicator of future rates of home price appreciation. Homebuyers should study demographic and economic trends in deciding where to purchase a home.

Tax savings

For most Americans there is tax savings associated with owning a home. The tax man plays fair with homeowners saddled with a mortgage. Come end of the year, all the interest the homeowner had paid is subtract from his earnings. Also deducted is the private mortgage insurance.

Expenses associated with homeownership

Though owning a home is valuable it should be understood that there are some expenses that come with being a homeowner. However, it should be noted that owing a home overshadows the associated expenditures. Depending on the state of the purchased houses, expenses will vary. A new house will not be too dear in terms of expenses as compared to an old or renovated house.Money is needed for renovating the house if it is an old one. Furnishing is yet another expense to consider. Others expenses include utilities and utility hookups, taxes, and insurances.

But as already mentioned, the homeowner is relieved the interest rates and the insurance. This makes homeownership more attractive than to renting, in long run.

Important considerations

Investing in a home with an intention of disposing it after a while to make a quick kill, might be feasible. But the opposite is true. Homeownership should be considered as a long term investment. It has been mentioned that real estate market is very unpredictable. One year the market can be very hot, come the following year the market becomes very depressed. Apart from this, the transaction associated with selling of a home is but discouraging. It is not cheap paying a realtor 4 to 6 percentage of the sales price. Compare this with yearly national home price appreciation rate, and disposing a home after a short while does not make sense.

Another issue to ponder prior to buying a home is the kind of mortgage you are going for. Different types of these loans have both advantages and disadvantages. Let’s take the example of adjustable rate mortgages and risk-based mortgages. The former gives low monthly payments in the beginning. This might look attractive, but be warned! Lo and behold, and before you realize it the payments will skyrocket, unexpected and by large amounts. A risk-based mortgage choice, in this case looks attractive, and is seems to a sensible choice.

Your income is another factor to be considered. It will not be wise to take out a mortgage that will strain you and turn you into a “house poor”. Don’t take a mortgage beyond your means under the assumptions that the salary will increase or you will be promoted or get a better paying job. You might not get that promotion or raise or worse, God forbid, loss your job. So consider your day to day expenses, and take a mortgage you can shoulder with ease.

Wealth Finance