Why Buying a Home Is a Good Investment

Maybe you’re renting an apartment or house, living with your parents, or sharing a place with friends. It can be exasperating forking over a big rent check month after month.

If you’re considering buying a home but aren’t sure you want to make the commitment, you need to think about your long-term financial picture. The fact is that homeownership helps build wealth. Here’s why buying a home is a good investment, and far preferable to renting.

You Aren’t Wasting Money on Rent

Rent can be just as much or more than a monthly mortgage payment. Once you pay a month’s rent, you’re never, ever seeing that money again. Sure, you have a roof over your head, but that’s it. When you make a mortgage payment, you’re building equity and increasing your financial stability. Help yourself, not your landlord.

Homeownership Offers Tax Breaks

When you own a home you can deduct expenses like property taxes and interest. These can add up to thousands of dollars every year, freeing up money you can save or use for something else. Renting doesn’t give you any deductions on your taxes.

You Build Equity

Equity is the difference between what you owe on your home and what it’s worth. Equity builds up in three ways: First, when you make monthly payments, your mortgage balance goes down and the equity in your home goes up. Second, as real estate prices rise, your equity rises, too. Finally, if you make renovations and updates to your home that increase its value, these additions increase your equity. Building equity is one of the simplest ways to increase your personal wealth.

You Can Sell It

Once you purchase a home, you can sell it any time you like. So, if you pay on it for a few years and build up equity, you can sell it and get your money out of it, or use it to buy another home. Even if you don’t have equity built up, you can always put your home on the market. You can’t do that when you pay rent.

It Helps You Build Wealth

As we mentioned earlier, homeownership is a smart way to start building your wealth. Generally speaking, people who own homes tend to be wealthier than those who rent. It makes sense, as a home is probably the biggest purchase you’ll make in your lifetime. As real estate prices increase, a homeowner’s wealth increases right along with it.

Even though buying a house is a good investment, it’s not completely without risk. Hopeful homebuyers should avoid these pitfalls that can make homeownership risky:

• Don’t go over budget. Buyers can push their budgets beyond their limits, aiming for the home that’s just a little bit bigger, in a better neighborhood, or with an updated kitchen and bath. This is a bad move, as the monthly mortgage payment can strain your finances for years to come. The worst-case scenario is you’ll get behind on the payments, go into foreclosure, and lose the home. Always decide on a budget and stick to it when you’re shopping for a house.
• Buy a home with wide appeal. You may love the three-level purple house, but would you ever be able to re-sell it? Probably not. Avoid unicorn properties. Do yourself a favor and choose a home lots of people would appreciate. Leave the one-of-a-kind houses and weirdly shaped lots to someone else.
• Work with a reputable lender. Securing a mortgage is a big part of the homebuying process, and you shouldn’t trust it to just anyone. Work with an experienced loan officer to get pre-approved. Choose the one you feel comfortable with, who will lay out your options and answer your questions thoroughly. The wrong lender can lead you down a bad path to decisions that aren’t in your best interests.

Buying a home, especially for the first time, can be daunting and seem like a huge risk. While homeownership isn’t risk-free, you can minimize the chances of making a bad decision if you carefully pursue it. Buying a home is ultimately a good investment when compared to renting. You can save on your taxes, build wealth, and avoid paying costly rent every month that nets you nothing. Why not take the next step to becoming a homeowner?