While the rent vs. buy discussion is an ongoing one, we want to take a moment to reflect on some of the financial benefits of homeownership.
As you weigh your options, here are a few things to keep in mind!
Homeownership Builds Equity
The most significant of the financial benefits of homeownership is that you build equity over time. You do this two different ways.
Method #1 is by paying down your mortgage every month. All of the principal you pay is essentially building equity in the home. If you pay $100 towards the loan’s principal, you essentially own $100 more of the house.
Method #2 is created by increasing home values. One of the 2022 housing trends we’re seeing is rising home prices. That’s great for homeowners, as it means they’re building equity. For example, if someone purchased a home for $400K in 2018 and it’s worth $600K in 2022, they’ve built $200K in equity just due to rising home prices!
This is huge because if you sell or refinance your home, you can use that $200K however you want. For example, it can be part of a downpayment on a new home, pay off high-interest credit card debt, or pay your child’s college tuition!
Homeownership Helps Maintain a Steady Budget
The second of the many financial benefits of homeownership is the ability to keep a steady budget.
Rents have risen over the last few years. The Rent of Primary Residence index is already at 361.08 for March 2022, when just last year, the index was 345.72.
In other words, home prices aren’t the only thing going up. Renters also feel the pressure because their monthly rent payments are increasing.
However, homeowners do not need to stress about such things. Assuming you have a fixed-rate mortgage, your monthly payment will never change! So if you paid $1,500 per month five years ago, you’d still be paying $1,500 per month now.
This is great for several reasons.
- It gives you peace of mind, knowing that you won’t suddenly get hit by a 20% increase in your rental contract from your landlord.
- It helps you budget your monthly income and expenses. While surprises such as home maintenance or repairs may pop up, at least you know your monthly payment will remain steady.
- Assuming you make more money over time, your monthly housing expenses may actually take a smaller percentage of your income. If you were making $4,500 a month five years ago and your payment was $1,500, your payment was about 33% of your income. If you make $6,000 a month now, your monthly payment is now only 25% of your income.
In the world of rising rents, a steady mortgage payment may be outstanding for you.
Homeownership Helps Your Credit Score
Several things go into how your credit score is calculated. For example, the number of accounts you have, the type of accounts, and the length of your credit history all play a role.
Your mortgage loan is no exception. It is one of these credit accounts that, assuming the bill is always paid on time, will help your credit score in the long run.
Lenders want their borrowers to be clients who pay their bills responsibly and can manage multiple things at once. Someone who has only ever had one credit account – their student loan – may not look favorable. But someone who has various utilities, a student loan, a car loan, some credit cards, a house in their name – and they’re all paid on time every month – is more attractive. That person is showing financial responsibility.
One of the financial benefits of homeownership is that it gives you the opportunity to have a significant credit account that you pay regularly. This proves you manage your money well and will boost your credit score, ultimately helping you land the best types of mortgage offers from lenders.
Conclusion
These financial benefits of homeownership are just the beginning. However, there are many more ways your wallet can benefit from you being a homeowner!
If you have any questions about the home buying process, we’re here to help! Send us an email at theinsightteam@neohomeloans.com or call us at 949-651-6300, and we’ll walk you through the process.