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Hidden Benefits of Buying a Home

Written by Ilyce Glink on November 11, 2011 in Real Estate  |   6 comments

When weighing your options for buying a home, you may hear the same criteria: Have you saved enough money for a down payment? Can you afford the expenses associated with owning a home? Are you going to stay in the home for a short period…

buying a homeWhen weighing your options for buying a home, you may hear the same criteria: Have you saved enough money for a down payment? Can you afford the expenses associated with owning a home? Are you going to stay in the home for a short period of time or is this home a place you intend on living in for years to come? Can you qualify for a mortgage?

If you are considering the benefits of home ownership, some of those benefits are missed by homebuyers when considering their options.

Tax deductions when you own a home

Mortgage interest tax deduction. First-time homebuyers may be pleasantly surprised when they file their personal income taxes after they purchase a home as their primary residence. The interest payments they have made to their lender are fully deductible. When you start making mortgage payments, almost the whole loan payment consists of interest. In the early years, you pay little principal back on the loan. If you have an equity loan on that primary residence, you can also deduct interest paid to the lender on loans up to $100,000.

Property tax deduction. In addition to the mortgage interest tax deduction, you can also deduct on your federal income taxes your real estate tax payments associated with your primary residence. IRS Publication 530 has more information about how to deduct your property taxes. And, for now, it seems that Congress will continue the mortgage interest tax deduction and the real estate property tax deduction.

Buying a home with extra perks

Buying a historical property. Buying a historical home has its pros and cons. You may be able to buy a home with history and heritage, but you may have to pay quite a bit more to renovate and keep up with home maintenance. If your historic home is in an historic district, you may have other limitations on what you can do with your home and how you must maintain the home. There may be a federal tax credit and state tax credit available to owners of historic property. In some parts of the country, if you own a historic home, you may be able to get a real estate tax benefit from your local tax assessor’s office. Thirty states now offer state rehabilitation tax credits for historical properties. Keep in mind that you may have to comply with certain building standards to keep and maintain historic property to receive a tax benefit. If you’re willing to put in the work to maintain a historical home and restore it to its original beauty, you may benefit financially. Start your search for a historic home with the National Trust for Historic Preservation.

Buying in a community targeted by state or federal governments for redevelopment. One of the most important rules of real estate is Location, Location, Location. In some cases, you can benefit by finding a neighborhood that has the backing of the federal or state government. Some government agencies will give lenders incentives to have them lend money in certain communities and neighborhoods. If you can qualify for these benefits, you might find that the interest rate on your loan is below market or that some of the closing costs associated with your purchase are covered by the lender or the governmental agency. The Community Reinvestment Act is a federal law that encourages lenders to meet the needs of borrowers in low- to moderate-income communities and the location of some of these properties can be targeted under specially designated census tracts. Talk to your mortgage broker or real estate agent to find out if you can look at homes in these census tracts.

Additional benefits of home ownership

Building Equity. At the beginning of the life of your loan, you will be paying most of your payment to interest. But every month, that balance will shift and you will be paying more of your payment toward principal and less to interest. Instead of paying rent to a landlord, you will be making the payment toward your investment in equity. While the last decade has not been a good one for homebuyers, historically, when you make your monthly payments, you will find that your loan balance decreases and you increase equity in your home.

Freedom of being a homeowner. If you look at rental listings you might find such criteria as “no pets” or “no painting.” Owning your own house gives you the freedom to make your home into whatever you want it to be, and the satisfaction that comes with building a home. You can make changes and upgrade your home, building more of an investment in your future and being the king or queen of your castle.

READ MORE:
Buyer’s Market Q & A with Real Estate Expert Ilyce Glink
Housing Market Predictions-Why Aren’t People Buying Houses?
Housing Market Predictions—A Triple Dip in Home Prices?
Home Maintenance Checklist for the Fall
Money Management Tips: When Celebrities Make Money Mistakes
Home Buying: The Low Down on No Down Payment Mortgages

Ilyce R. Glink is the author of several books, including 100 Questions Every First-Time Home Buyer Should Ask and Buy, Close, Move In!. She blogs about money and real estate at ThinkGlink.com and at the Home Equity blog for CBS MoneyWatch.

6 comments

  1. Alannah says:

    All of the benefits of home ownership are summed up in pride of ownership, forced savings, and a hedge against inflation. Mortgage interest deduction is not really of any benefit in the larger picture. For example, in Canada there is no mortgage interest deduction for a primary residence. However if you bought for $100000 and sold for $1000000 you pay no tax on the appreciation. That is a real benefit. Furthermore real estate values are not suffering in Canada as a result of more conservative lending policies and lack of a mortgage interest deduction. In our country, the mortgage interest deduction for the average middle class couple is not a significant amount greater than the standard deduction for a couple and should only be considered in that vein. If Americans really understood the deduction pros and cons they would happily opt to trade the deduction for the Canadian unlimited tax benefit at point of sale.

  2. Alannah says:

    Of course if you live by the above you will also have appreciation over time and not be forced to sell in a down market.

  3. John L. says:

    Equifax should include the EQUITY value of primary/ homestead residences in consumers’s credit file, once the mortgage lien is paid down significantly (50% equity & +) & once the homestead is free & clear of any lien or claim (ie. ‘paid off’ ).

    Equifax prominently – famously – includes the value of loans – patic the value of mortgage liens in consumer’s credit file. Why cannot Equifax include significant equity values of primary residences ? Systematically excluding consumer’s equity in its analysis of consumer’s credit score would be unjustified economic discrimination.

  4. Jane says:

    Equifax weighs unused credit card capacity in calculating credit scores via its ‘algorithm.’ So, Equifax should be comfortable recognizing consumer’s home equity in calculating credit scores, because in today’s high-tech world home equity is as easily verified as (is) a consumer’s unused credit card capacity.

    Home equity deserves inclusion in Equifax’s algorithm, as Home Equity is not just a good measure of ‘capacity,’ home equity is also a good measure of ‘character.

  5. Edward says:

    Upon paying off one’s mortgage, why shouldn’t Equifax enter the Mortgage Discharge in the consumer’s credit file ?

    The Mortgage Discharge is in Public Record, having been registered in the County Register of Deeds office. The Mortgage lien was entered in the consumer’s credit file, way should not Equifax include the Mortgage Discharge in the credit file as well?

    Future lenders/ creditors find mortgage discharges valuable information when the are considering loan applications.

  6. Edward says:

    And once off, the Mortgage Discharge is in ones credit file, having been filed county Deeds Office (ie. the public record). The Mortgage Discharge is valuable info to have when one applies for credit/ loans in the future.

    Equifax should include the Mortgage Discharge in your credit file, as its the ‘flip side’ of the Mortgage Lien…


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