It is no secret that over the last decade the number of first-time homebuyers has dropped tremendously. At the peak of the market in 2009 & 2010 almost half of all home purchases were done by first-time buyers. Last year that number dipped to 33%, which is in line with the five-year average.
There are several reasons for this drop ranging from reduced mortgage programs to increased rental options. What cannot be debated is the benefit of homeownership. Buying young (25-44) can start the ball rolling for a solid financial portfolio for years to come. With mortgage guidelines softening in recent years you can become a home owner with as little as 3% down payment, and in some cases just 1%. If you are on the fence as to whether buying is for you here are four reasons why you should explore homeownership today.
Tax benefits. If you have never owned a home, you don’t fully appreciate the impact it has on your tax return. There are several specific benefits that directly change your tax return, for the better. For starters, the government allows you to deduct the interest you pay on the mortgage. The bulk of the first half of a 30-year mortgage payment is interest. By writing this off you offset any payments you have to Uncle Sam. You can also deduct the property taxes and closing costs on a new loan. In total, when you add in the tax benefits of the property you are left with a very positive net benefit. This is something that is often overlooked but must be recognized.
Appreciation. If the mortgage collapse of last decade taught us anything it is that appreciation is far from guaranteed. Long gone are the days of buying in January and selling in August for a 10% gain. That being said, if you buy at the right price and in the right market there is still appreciation to be had. This is especially important for first time homebuyers. It wasn’t that long ago that buying a home was considered a method of forced savings. You made your payment every month and at some point, years down the road sold and used that appreciation on your next home. With that you keep your same monthly payment, but because of your increased down payment keep your payment the same.
Stability. There is no denying that there are some positive effects of renting. You don’t have to go through the rigors of applying for a mortgage, coming up with the down payment and being on the hook for every property expense. As great as those may be at times, renting is often unstable. Even a great relationship with your landlord doesn’t guarantee they will keep the house forever. They may sell at any time if given the right offer. As a homeowner you know where you are going to be and how much your payment will be for the foreseeable future. This stability allows you to look at jobs and careers in certain markets knowing you won’t have to pick up and move unexpectedly.
Equity. You don’t have to wait until you sell to take advantage of your property value. You can utilize your equity for financial gain. Simply put, equity is the difference between what you owe and what your home is worth. This equity can be tapped into in the form of home equity lines of credit or a cash out refinance. Knowing that you have equity in place allows you to consider selling early or using the equity to pay down some debt or make improvements to your home.
Like anything else owning a home is an adjustment, but once you get past the initial change is smooth sailing. If you are on the fence the spring season is a great time to get preapproved and start looking to buy.