There are many motives for home ownership. In addition to being the largest single investment most people make, a home provides a sense of security and stability, a feeling of belonging to a particular neighborhood, pride of ownership, and financial advantages.
When you do buy a home your mortgage payments are generally constant over the life of the loan, or at least predictable. Rents, however, always tend to increase with the passage of time. Just look at what has happened in the past two or three years with rents in the Bay Area. They have increased from 20%, 25%, and more depending on the location. Your monthly costs and stability are always subject to the landlord’s discretion.
Home ownership enables the owner to build significant equity over time. The equity growth is routinely from three sources. First, every month you are slowly paying down the loan principal. Secondly, over time home values appreciate. Third, as improvements are made to the home the value increases. Equity is the difference between the home value and the amount owed against it. The increase in equity usually provides a stepping stone for the acquisition of a larger, nicer home.
Home ownership also has certain tax advantages. Homeowners are allowed write-offs that reduce personal income taxes. The interest portion of the mortgage payment and the property taxes paid are deductible from your income.
In the year of the purchase there are buying expenses that are immediately deductible: mortgage interest, property taxes, and loan origination fees. These amounts can be quite substantial and result in a significant reduction in both state and federal income taxes. In order to be eligible for the tax deductions, the taxpayer must be the legal owner, or equitable owner, of the home. The sooner you have the home buyer’s benefits working for you, the better off you are. When you add up the advantages of home ownership, it becomes obvious that the most important single factor is to buy a home as quickly as you possibly can, and at an early age. Time can be your ally or your worst enemy. Finding the home of your dreams can happen down the road, perhaps after purchasing your first, second or even third home. Buy whatever you can afford now. Don’t wait.
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