1. Opportunity to Build Equity
When you hear people talking about real estate and owning a home, one of the most popular words you’ll likely hear is equity. “What is equity?” is one of the most commonly asked questions from home buyers.
Equity in real estate is the probable market value of a home minus any liens against the property, such as a mortgage. One of the great advantages of home ownership is the opportunity to build equity.
The longer that you own a home, the more you’ll pay towards the principal balance of any liens. As the balance of any liens against a property gets lower, and hopefully the value of the property increases, the larger the equity.
2. Borrowing Cash
Once you’ve built up enough equity in your home, you can borrow against it should the need arise. This can be a helpful strategic option if you need to remodel your home or pay down higher-interest debts, such as credit cards or student loans. The most common type of loan is a Home Equity Loan or Line of Credit (HELOC).
In a home equity loan, you borrow against the amount of equity you’ve acquired in your home. It’s worth noting that the bank won’t let you borrow the full amount of equity; they usually allow you to borrow 80%-90% of your home’s value. This loan-to-value amount varies depending on your creditworthiness, equity and various other factors determined individually by each lending institution.
Many of our clients have utilized HELOC's to purchase investment properties and generate recurring cash flow by renting out their other properties. We are happy to walk you through the process and explain how you can use your home to generate more cash for you. Reach out to anyone on the PMG Realty team to explain the process and options you have that you may not be aware of.
We have numerous lending institutions we work with, and we will be happy to connect you with them to find out how much you qualify for and start the process.
3. Tax Advantages
While most of us don't enjoy paying taxes, it is a necessary evil. One of the great benefits of owning a home is the tax advantages that it provides. Buyers who have a strong understanding of important real estate tax tips quickly realize that owning a home provides some solid tax advantages.
Arguably, the biggest tax advantage of owning a home is the option to deduct paid monthly interest from your tax returns. During the first several years of the term of a mortgage, a borrower's monthly payment is almost all interest. This means that at the end of the year, there’s a nice deduction.
In addition to the ability to deduct monthly interest from a tax return, a borrower can also deduct mortgage insurance payments and other home-related purchases. It’s recommended that if you’re unsure how owning a home will impact your taxes that you discuss it with your accountant so you fully understand how owning real estate will impact you come tax season.
4. Build Your Credit
Because most people use a mortgage to buy a home, homeownership can be a boost to your credit. A long track record of regular, on-time monthly payments on a loan is one of the best things you can do for your credit score.
Most landlords don’t record your payment history to the credit bureaus (unless your wages have been garnished or you’ve gone to court for eviction). So while your landlord will appreciate your timely payments, unfortunately, your credit score won’t reflect this.
5. It's YOUR Home!
One of the other greatest benefits of owning a home is that it’s YOURS. Owning a home provides you with the freedom to customize it however you please. So you can say bye to having to reach out to your landlord whenever you want to paint the walls or replace the floors because YOU’RE the boss now! But remember that any home improvements that you make must still follow your local laws.
