Becoming a homeowner in 2023 is no easy feat. To get mortgages with decent terms these days, buyers need strong incomes and credit profiles. They need the sheer luck of finding a suitable home, receiving positive appraisal and inspection reports, getting an offer accepted, and winning that all-important final mortgage approval. A buyer must get all the way to the closing table without a wealthier or more influential buyer elbowing in.
And if it all comes together, will it all be worthwhile?
1. Some New Owners Are Surprised at How Cost-Effective Homeownership Can Be.
A monthly mortgage payment and routine home maintenance, for most home buyers, is usually in the same general range as a monthly rent payment. Or lower. Across the country, renting has become so pricey that it’s often cheaper to own. One REALTOR.com® survey found that in close to half of U.S. leading metro areas, it was cheaper to stop renting and buy instead.
No doubt, homeownership is a major investment for those who can pull off the down payment and closing costs, and odds and ends like title insurance. (And that doesn’t even count the rising mortgage interest rates. The interest rate for a 30-year fixed-rate mortgage had touched 7.1% in the first week of March 2023.)
When the buyer first settles in, there can be maintenance surprises. And that’s after the expenses of moving and furnishing and redecorating. There might be an association, and related monthly fees. There are the property taxes on a newly assessed home. It does help that some of the basic costs are paid out of the escrow account, but there’s a lot to get used to for the first-timer.
Ultimately, though, the buyer can pay off the mortgage, retire, and pay just the taxes, insurance, and routine maintenance expenses. Buy today; set the stage for affordable housing costs later in life.
Property taxes can go up, yes. But rarely as much as rent can.
And on that note…
2. Homeowners Enjoy Building Wealth Over Time, Simply By Staying in Place.
A home buyer’s payments go to support the buyer’s own financial future. No more spending money to finance another person’s property.
Each mortgage payment brings down the buyer’s debt a little. Each payment, month by month, builds up the owner’s home equity. And that becomes wealth. It can help pay for another home, or fund any number of other lifetime goals.
Sure, the market surges and slips. But it has proven, over generations, to grow in value over time.
Even in the worst real estate times, prices look for a way to rise. To see the data, check the FRED Economic Data webpage.
Analysts say continued appreciation will occur in the years to come. From 2024, home values are expected to steadily rise. Now, does this hold true for every home? Of course not. Some homeowners cannot keep up with repairs. Some are in the middle of declining neighborhoods. So, there are situations where buyers lose money on their investments. But while making money off a home purchase is not always a sure thing, there’s definitely no profit in paying rent.
Finally, an advantage of paying a mortgage is its inherent credit-building effect. Faithfully paying a mortgage down every month strengthens a person’s credit profile. And as applicants know, credit rating companies and credit card firms do extend more credit to people who identify themselves as home owners.
3. Many Renters Want More Control Over Their Housing. Owning a Home Offers That Control.
Home buyers’ remorse is absolutely a thing. But the shift from renting to owning can bring a deep sense of ease. The home buyer can bid farewell to landlords who pop in on a moment’s notice and other anxious times. Even better, there are no more concerns that the owner might suddenly decide to yank the place away, and do something else with the property.
And gone for good is the thought that a certain improvement won’t be acceptable, or that it’s basically a free gift to someone else. Now, the buyer’s own aesthetic can flourish, in the home and in the garden. The owner can put in new flooring, install money-saving smart features, rescue a cat, or decide to remodel or rent out a room without anyone else’s say-so.
In short, ownership of a home brings its resident greater control over daily life. That includes control over what ultimately happens to the place a resident maintains and becomes attached to.
Caveat: If you buy a condo or a house withing a homeowners’ association (HOA), you do get a board looking over your shoulder. But there are advantages to associations, too. The balance depends on the specific board and its rules. Learn more about condo boards here.
On a related note, if you’re buying into an association, learn about deed restrictions. These could limit use, modifications, and the ability to rent out your property.
4. Homeowners Can Be Rewarded for Borrowing. Consider the Tax Benefits That Come With a Mortgage.
The federal tax law lets a home loan borrower deduct mortgage interest payments, property taxes, and certain home-buying and closing costs. Depending on location, a homeowner might be able to receive a local homestead exemption on property taxes too — a major benefit.
And when an owner of a primary residence sells it at a profit, that owner can generally keep up to $250,000 in gains, free from federal capital gains tax. (Couples filing jointly may double that exclusion amount for a home they own together.) In most cases, to qualify for this tax exclusion, the seller will simply have to have owned the home for two years of the past five when selling.
☛ Ready to do your taxes for the 2022 tax year? Check out our guide to the current deductions and tax breaks.
For All of These Reasons, Getting “On the Ladder” of Homeownership Can Really Pay Off.
A chaotic economy shouldn’t put off those who feel strongly that they’d like to buy, and who have financially prepared to buy. A recent survey by LendingTree suggests that buyers’ regrets aren’t common, even during this fiercely challenging time for buyers.
Four out of five buyers between 2021 and 2023 are satisfied with their decisions, says LendingTree. Boomer buyers are happiest overall, with nine out of ten expressing no regret. Your mileage may vary. But it’s worth noting that home buyers get predictable and steady housing costs, month to month, year after year. They get some helpful breaks from the IRS. They get control over the property. And if all goes well, they build financial strength.
Note:This article offers general information only — not financial or legal advice, and not tax expertise. Be sure to go over your own particular circumstances and goals with your experts.
Supporting References
REALTOR® Magazine (a publication of the National Association of REALTORS®): Seven Reasons to Own A Home.
Deeds.com: Tax Tips for Homeowners to Keep in Mind All Year (Jul. 29, 2022).
Deeds.com: Rent or Buy – Is There Even a Choice in 2022? (Jun. 3. 2022).
Deeds.com: For Home Sellers – Capital Gains Tax 101 (Mar. 29, 2021).
And as linked.
Image credits: RODNAE Productions and Taryn Elliott, via Pexels.