You see a lot in the news today about millennials not buying homes, either choosing to rent apartments or simply not being able to afford a house. Arguments ensue from all sides. However, setting aside those issues, what are some general reasons for buying a house?
When you rent, you are paying someone else to live in their property. When you buy, you are paying yourself to live in your own home. That may sound a little weird, since you are paying the bank. But, when you buy at house, think of it like an investment, like a stock or bond. The bank lends money to you to purchase the house, but when you pay them, you create something called equity on the home. Equity is the difference between what you owe to the bank and what the current value of the home is. Meaning, when you sell the home, the equity is profit to you.
Equity grows as you pay down the loan. It also grows as your home value increases. The value of homes has steadily increased 3 to 6 percent a year for the past twenty years. The housing market has bubbles, where you see skyrocketing values and shocking falls, but the overall trend is growth. That means when you hold on to your home for a long period, you have a high yield savings account. When you eventually sell, those loan payments and the equity becomes money in your pocket.
When you itemize your taxes, you deduct the mortgage interest payments and your real estate tax from your income. That amounts to a significant deduction on your federal tax payment. This is why so many wealthy people have multiple properties. The government does this to encourage home ownership. Take advantage of it!
Interest rates have remained low for years, but that won’t always be the case. That makes it a great time to buy a house. Of course, even when interest rates climb, it is still worth the investment. Currently, rates are around 4.6%.
The IRS lets you deduct mortgage interest and real estate taxes after you buy. However, the US government also helps you buy a home with programs like the Federal Housing Administration mortgage insurance backed mortgage loan (FHA loan) for first time home buyers. You can also find USDA loans for rural buyers, VA loans for the military and veterans, and the Good Neighbor Next Door program for law enforcement, firefighters, EMTs, and teachers.
In an apartment, you pay deposits in case of damage and deposits for pets. You have landlords invading your privacy, telling you what you can and cannot do in your home, and raising your rent with no notice. In your own home, you can do what you want. Paint the walls lime green. Hang a hundred pictures. Tear out a wall! It is yours! And, if you spill wine on the carpet, you don’t forfeit your deposit.
If you want to buy a home, check out SOS Property Solutions. They can get the process started today!