Buying and owning a home can be expensive. You may have to save a down payment for a house or pay for repairs big and small, making it hard to avoid money stress.
However, it might surprise you to know that, as a homeowner, you could have a higher net worth than a renter. While you may think renting is cheaper than owning, that’s not always the case.
So, what makes someone who owns a house have more net worth than someone who rents? Here are some reasons that might surprise you.
A home is forced savings
One of the benefits of owning a home compared to renting is that your mortgage payment is going toward your net worth. When you pay off your mortgage, you end up with something tangible that you own.
On the other hand, renters are simply paying a landlord every month for something that will never belong to them.
A house can appreciate in value
There are times when the real estate markets crash and you’re left holding a home that isn’t worth as much as you paid for it.
However, your home could also appreciate in value, which means you can earn a profit on it when you sell. As a homeowner, you can pocket that profit or put it into moving to a bigger house, which could raise your net worth even more.
Mortgages can be stable investments
Renters often have to follow the whims of the market. If you sign a year-long lease, there’s the risk that rent could go up depending on market trends.
But if you have a fixed-rate mortgage, you’ll have stable and consistent payments every month without needing to readjust your household budget depending on market changes.
Pro tip: Remember that, unlike a fixed-rate mortgage, an adjustable-rate mortgage could cause your monthly payments to change. Research the best mortgage lenders to find the type of mortgage and rates best for you.
You can use your equity for a loan
Putting money into a home means you could also pull money out of it if you need to. A home equity loan allows you to borrow money from your home that you can use for home improvements as well as non-home-related expenses.
What’s more, home equity loans often have a lower interest rate than other loans, which could save you money.
You can save money on taxes
When you work up your yearly tax returns, you may be able to take advantage of some important tax deductions as a homeowner. This could include a deduction on the interest you paid on your mortgage or the ability to deduct property tax payments.
Remember to factor in any potential tax deductions when you create a budget as part of your home-buying process.
You’re building up a strong credit history
By paying your monthly mortgage on time, you’ll be building up a good credit history you can use for other investments or loans later on. Your credit history could also help you get a lower interest rate on other loans or get a good deal on some of the best credit cards.
Your home investment can give you good returns
You may find that when you’re ready to sell, your home could garner you a better return than if you had invested in the stock market, high-yield savings accounts, or other financial products.
There are several factors like the changing real estate market and any updates you make while living in your home to keep it in good shape and make it appealing to potential buyers.
Homeowners can make their own improvements
If you’re renting, you usually can’t make the changes you want to your housing. You may also have to deal with outdated bathrooms and kitchens and not be able to repaint any rooms or walls.
As a homeowner, however, you can make whatever improvements you want to suit your personal tastes. What’s more, those improvements could also make your home more appealing if you ever want to sell it, earning you more money.
You have money for other investments
If you’re able to save extra money each month with a fixed-rate mortgage versus paying ever-increasing rental costs, you can use what you save for other investments.
By owning a home, you can use your extra cash for retirement investments, your kids’ college education, or even money to put back into your home for updates and repairs.
You’re responsible for fixes
A landlord may send someone for an emergency repair who might not fix it properly or may be so expensive that the additional costs could increase your rent. But if you own a home, you can shop around and choose who you want to make the correct repair.
A repair will still be an out-of-pocket expense, but it could also save you money by allowing you to find the best prices and most reliable professionals. You may even be able to use YouTube and fix it yourself.
Moving costs might not be a concern
Renters may have to change apartments or homes depending on changing market conditions, if their lease doesn’t get renewed, or issues with their landlord.
Homeowners, on the other hand, have the stability of a mortgage, which means less need for additional moving costs or the constant need to find new housing options.
It’s part of your financial portfolio
When you sit down with your portfolio of all of your investments, remember that your home is an investment. You can consider it part of your net worth similar to stocks and bonds, retirement funds, savings, and other investments.
If you ever need to cash out your investments, you could sell your home and pocket any additional cash you earn. Renters, however, can’t consider their monthly rent checks as an investment made into a property.
Owning a home could be an expensive endeavor, especially if you’re looking for ways to pay your rent every month. However, getting a mortgage for your own place could build your net worth and help you achieve both your short- and long-term financial goals.
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