With this year’s homebuying season expected to be the “most competitive” since the Great Recession, you may feel pressured to close on the property you’ve had your eye on.
This time of year can be stressful, especially for first-time homebuyers. Questions arise about the prudence of your investment, whether you’re financially prepared, and whether you’re ready for the long-term commitment.
While these are all valid reasons to be uncertain about taking the plunge into homeownership, the case for buying a house is substantial. Here are the top six reasons to make the investment this year:
You’ll Save Money Long-Term
In many cases, buying may save you more money than renting with the current low mortgage and interest rates. Even in hot markets, there are still financial benefits to buying, especially if you’re planning to stay in the area for a long period of time. However, keep in mind that lenders typically limit your mortgage expenses to 28 percent of your gross annual income and evaluate your credit score. Some may even require a down payment.
You’ll Have Fixed Payments
When renting, you run the risk of having your monthly payments increase substantially at the discretion of your landlord. This can put you in an uncomfortable position where you may potentially have to move out of the rental or you may begin to feel a financial burden.
Comparably, when you buy a home, your monthly mortgage payments will remain the same throughout the entirety of the loan if you acquire a mortgage with a fixed interest rate.
You’ll Build Equity
A major disadvantage with renting is that your payments do not build equity. In other words, you make no investment return since you don’t own the property. However, when you buy a house, your monthly mortgage payments build equity and ownership interest in your home over time.
If you stay in your home for 10 or 20 years and accrue a significant amount of equity, you may realize a nice profit when you sell the house.
Another perk of building equity? Building your credit score. The mortgage you take out on your home will appear on your credit report and give you the opportunity to not only diversify your credit, but also to build payment history. As long as you’re consistently making your monthly payments on time, your credit score will gradually increase.
You’ll Benefit from Appreciation
As long as the demand within the housing market remains consistent and sale prices continue to rise incrementally year-over-year, a home’s value may increase with time. In 2017, the average national appreciation rate was 6 percent, and experts are estimating a 3.5 percent appreciation for 2018. Owning your home on a long-term basis may provide a profitable return on investment when you sell.
You can also improve appreciation through various renovation projects that will increase the home’s value, such as remodeling or upgrading appliances. This will increase the likelihood that you’ll be able to sell the house for more money than the original purchase price. If you build significant equity in the home, you will have a larger amount for a down payment should you decide to purchase another home.
You’ll Get Tax Breaks
In addition to a possible return on investment (ROI), you are allowed to deduct your mortgage interest when you itemize your deductions on your tax return. However, the new Tax Cuts and Jobs Act (TCJA) limits the deduction amount up to $750,000 of mortgage debt used to purchase or improve the home. This limit falls to $375,000 for those who are married but file their return separately.
There are also tax advantages when you sell your primary home due to the capital gains exclusion rule. This allows homeowners to exclude gains from a home sale up to $250,000 for an individual or $500,000 for a married couple from federal income tax.
You’ll Get Experience
If this is your first time buying a house, you’ll be exposed to working and negotiating with a real estate agent. The skills and knowledge you’ll gain from this experience will equip you to handle negotiations when you’re ready to move out of your starter home or purchase a vacation home.
Buying your first home is an exciting life milestone that requires a lot of thought and planning. If you’re considering becoming a homeowner this buying season, a CFP® professional can help you determine what you can afford based on cost of living and taxes in areas you’re most interested in and prepare a short and long-term strategy for financing your new home.
Marty L. Reid, CFP®, CFP Ambassador
214 South Academy St., Lincolnton, NC 28092
For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice.
Registered Representative offering securities and investment advisory services through Cetera Advisor Networks LLC, member FINRA/SIPC. Reid Financial and Cetera Advisor Networks are not affiliated.