The Great Things About Owning a Home
- The home is yours, so you can make it your own.
When you own your home, you can turn it into your ideal living space. Unlike renting, you have the freedom to renovate, remodel and even expand. The only limits are your local ordinances.
- You can stabilize your housing costs.
With a fixed-rate mortgage, your principal and interest payment will stay the same for the life of your home loan. That means you’ll never have to worry about your landlord hiking up your rent at the end of your lease. The only things that could change are taxes and insurance.
- You can build equity.
As you pay down your mortgage, you build equity in your home. In time, you may be able to use your equity to take out a loan for home improvements, pay down debt or put toward other financial goals.
- Eventually, your home may be paid off.
Whether you get a 15- or 30-year mortgage loan, at the end of that time, your home will be yours, with no more payments to make. Renters will have to pay rent every month indefinitely.
- A home may increase in value.
Depending on where your home is located, what kind of home you have and economic conditions, your home may become worth more than you paid for it.
Tax Advantages and Considerations With Ownership
To take advantage of homeowner deductions, you need to file federal tax Form 1040 and itemize your deductions on Schedule A.
If you itemize, you cant take the standard deduction. But if the standard deduction exceeds the amount that’s allowed as itemized deductions (including the homeowner deductions,) it may be best to take the standard deduction instead.
Talk with your tax advisor to determine the best way to file. Homeowner deductions can often be applied to state income taxes as well, although not all states impose a personal income tax and tax rules vary from state to state.
Expenses that may be deductible:
- Your interest payments
If you’ve paid interest on a first mortgage, second mortgage, home improvement loan or a home equity loan, these payments may be tax deductible.Your lender should provide you with the annual Form 1098. This will be a useful reference document as you prepare your income taxes. In the early years of a conventional fixed-rate mortgage, your monthly payments will primarily go toward interest. That means your mortgage interest deductions have the potential to create more tax savings in the early years of your mortgage.
- Real estate (or property) taxes
Property taxes are assessed annually by county or local authorities to help pay for public services. They are fully deductible from income taxes. As a rule of thumb, you can expect to pay 1% to 3% of the market value of your home in annual property taxes.
- Discount points
Did you choose to pay points up front in exchange for a lower interest rate? If so, the amount is generally deductible in the year you paid the points if you have a purchase mortgage less than $1,000,000 on a primary residence. If the points are paid for a refinancing of your mortgage, the points may be deductible over the life of your loan.
Expenses that can’t be deducted:
- Closing costs
- Homeowner’s insurance expenses
- Cost of utilities
- Real estate commissions paid to agents
- Home inspection, appraisal or loan application fees
Low- to moderate-income homeowners:
If your state considers you to be a low- to moderate-income homeowner, you may be eligible for mortgage interest tax credits for a portion of the interest that the state pays on your behalf.
You must obtain a mortgage credit certificate from your state or local government prior to obtaining the mortgage. Contact your local government agency for this and other eligibility information and for more information about how the credits work.
The Great Things About Renting a Home
- You dont have to handle the repairs and upkeep.
If you have a leaky sink, you can call the landlord to fix it. If you own the home, you have to hire a plumber, or fix the leak yourself.
- You may not have to pay for insurance and utilities.
Some landlords cover insurance and utilities so you don’t have to pay them. These costs can add up fast.
- You can move easily.
A lease is a short-term commitment. When it expires, renters are free to go. As a homeowner, if you want to move, youll have to find someone to buy or rent your home.
- A home may lose value.
While your home could go up in value, it can also go down, as many did during the housing crash that began in 2006. If your home loses value and you need to sell, youll need to repay the full amount of your mortgage even if your home is worth less in the current market.