Homeownership has long been considered a piece of the “American Dream.” But for multitudes of renters out there who are nearing the end of their leases, taking the leap into buying their first home may seem like a daunting challenge to conquer. Or maybe they weigh the responsibility as not worth the reward.
Whatever reasons may be holding you back, it’s important to understand the benefits of owning vs. renting a home. Once you explore what the potential is, you just may find that it’s time to reconsider what’s right for you.
The Financial Benefits of Owning Your Own Home
By the time the first week of the month arrives, you’ve sent off that rent payment to your landlord. But by making monthly rental payments, you’re bolstering the wealth of someone other than yourself. In contrast, owning a home flips that relationship back in your favor. Unlike renting, where you’re consistently paying out money to a landlord, a purchased home offers the prospect of building wealth since it may appreciate in value over time. When you make a mortgage payment, part of that money goes toward the principal balance. The longer you live there and pay down the mortgage, the greater your stake in the property’s value. Should the property increase in value over time, then you, in turn, will have built up more equity. (Property has the potential to decrease in value, as well.)
“Like investing in the stock market, setting aside emergency savings and saving for retirement, homeownership is another vehicle that may offer the potential to build wealth,” says Citi Home Lending Officer John Gnisci.
The equity built from owning a home can extend far beyond the homeowners themselves. A recent study from the Urban Institute examined how parents’ homeownership and wealth influence young adults (ages 18 to 34). The study found that children of homeowners are more likely to become homeowners. There are several reasons for this, the top being that a home may be a wealth-building asset. This wealth can be passed on to the homeowners’ children, aiding them in their own home-buying endeavors, which in turn may lead to their own accumulation of wealth. The purchase of a home could mean the beginning, or continuation, of generational wealth for homebuyers and their families.
Homeownership may also provide stability in terms of monthly payments. Renters may be subject to sudden increases in their housing costs due to hikes in their rent, such at the end of the term of a lease. By contrast, if you purchase a home through a fixed-rate mortgage, the amount of your monthly loan payment won’t increase over the term of the loan – which may provide a greater sense of financial stability and control. But be sure to consider how other recurring costs that may come with homeownership – such as homeowners insurance, property taxes and common charges like HOA fees – factor into your total monthly housing expense. (These costs may also fluctuate over time.)
Homeowners may also be eligible for tax deductions which renters may be unable to utilize. Depending on the homeowner’s situations, they may be able to deduct mortgage interest and property tax payments (though not necessarily their full value) as well as other expenses from their federal income tax if they itemize their deductions. Consult your tax adviser for potential tax benefits.
The Non-Financial Benefits of Owning a Home:
While the financial benefits of purchasing your own home are solid, the ones outside the realm of money often give us the most satisfaction.
We all crave a space to call our own, along with the autonomy to choose how to make it our own. As Gnisci says, “Owning gives you more freedom to personalize your home.” Whether it’s having to ask permission to paint a wall or perform the most basic renovation, renters may be highly restricted in customizing their living space.
“Homeownership, for me, means stability,” notes Dorothy Botsoe of Dorothy Jensen Realty in White Plains, New York. And during a time when it feels like we can control very little around us, being able to create a sense of stability can be indispensable. Owning a home provides you with a space that’s truly yours. It instills a sense of pride, and may allow you to become more connected to your community. Like the financial equity you may build when you own a home, you’re building emotional equity for yourself and your family. Moving toward homeownership is taking a step toward the future.
As a reliable partner in the mortgage process, Citi is here to help you take your first steps toward homeownership. Click here to learn more about how you may be able to move into the home-buying process with the confidence and knowledge you need.
Sponsored content presented by Citibank, N.A. NMLS #412915. Member FDIC and Equal Housing Lender.