The Benefits of Buying Your First Home
Taking the leap to becoming a homeowner can be scary for first-timers. You're probably wondering if the commitment is even worth it and if you should just keep renting. But you might find the benefits outweigh the drawbacks.
Taking out a mortgage can seem like a daunting amount of debt, especially for a first-time buyer who might also be carrying student loan debt or credit card debt. The good news is there are a lot of tax deductions and other benefits you can get just for being a homeowner.
You might be able to deduct:
- Mortgage interest deduction
- Property tax
- Private mortgage insurance
If you've owned your home for more than 2 years and you're ready to sell, you might qualify for the capital gains exemption. The exemption is a tax break that says you don't have to pay taxes on a profit of up to $250,000 (or double that if you're married). That's great news if you bought early in an up-and-coming neighborhood or if you put a lot of sweat equity in your home, raising its value.
A mortgage is like a forced savings account
Did you most Americans don't have enough money saved for an emergency? Buying a home isn't going to revolutionize your finances, but your mortgage will act like a forced savings account. That's because every time you make a payment, a portion of it is going to your equity. That equity is the portion of your home that you own, not the bank. You can use our mortgage payoff calculator to see how that number changes over time.
And speaking of equity, once you start building it, it's also there for you to use in the form of a Home Equity Line of Credit if you need to make a big purchase, like paying for college or childcare.
It can be cheaper than renting
In a lot of places in the US, buying a home is cheaper than renting, especially in the long-run. If you live in one of those cities, you're saving money every month because your mortgage payment is cheaper than your rent. The possibilities for that extra money are endless. You can pay extra on your mortgage to help build equity faster, you could invest it, or you could put it in a savings account for a rainy day.
Your home can make you money
Your home can also be a way to make some extra cash on the side, especially if you live in a high-demand city. That's thanks to the Masters Exemption, a tax benefit that lets you rent your home, tax-free, for 14 days every year. It's named after the famous golf tournament in Augusta, Ga., but you can use it anywhere in the country. Be creative with it. You can crash with a friend during homecoming weekend and rent your house to some nostalgic alums or you can rent it out while you're on vacation. Try home rental sites like Airbnb or HomeAway to find your renters.
Or, if you're not comfortable renting to strangers, you can always get a roommate to help with the mortgage. Just be sure you fully understand any tax implications and you've carefully vetted your new roommate.
Renting gives you a lot of flexibility to pick up and move for a new job or if you decide you don't like your neighborhood anymore. But putting down roots can be extremely satisfying. When you own a home you can become a regular at the coffee shop you walk to every Saturday. You can start to form relationships with your neighbors, who will eventually become friends.
Flexibility over your space
When you rent there are limitations to how much you can personalize your living space. Painting and decorations are usually okay, but anything bigger is often out of the question--or it doesn't make sense financially. But when you own your home, you have more flexibility over how you personalize it. Want to put in a stone bath to a small koi pond in the backyard, no problem. Thinking about pulling up the carpet and putting in hardwoods? Go for it! Having that flexibility can feel great, especially after renting for years.
The benefits that come with buying a home might outweigh any fears you have about taking out a mortgage. If you think you might be ready to become a homeowner, our resources for first-time home buyers can help you make your decision and lead you through the process.