Benefits of homeownership

Key insights:

• Homeowners benefit from paying off their monthly mortgage, as it raises the equity they have in their home.
• They also benefit from home price appreciation, which is when the value of your home rises in the local property market.
• Last, homeowners come to love the freedom and control they have over their living situation. From practical upgrades to design preferences, homeowners get to call the shots.

When you have a decent rental situation or you’re living with family or friends, it can be tempting to put off the decision to buy. Still, that voice in the back of your head tends to speak up each month as you’re paying your monthly rent and wondering… What if this money benefitted me, instead of someone else?

If you’re wondering about the true benefits of homeownership and how you might calculate them for yourself, here are some insights we’ve gleaned from 65+ years of helping local buyers and sellers in Minnesota and western Wisconsin.

Equity

The majority of homebuyers take out a loan for the property and pay off their property’s mortgage over time. As you make your monthly mortgage payments on a home that’s value is holding steady, your home’s equity will grow. (Equity is the difference between what you still owe on your mortgage, and the value of your home in the current market.)

When you rent from a landlord, the property asset is in their name — and they benefit from rising equity. When you own your home, equity gains directly benefit you. Whether you decide to keep all the equity in your home and “cash out” at resale, or pull out some funds over time to pay for home updates, college tuition or other worthy expenses, equity is one of the greatest perks of homeownership.

Appreciation

Remember how equity is the calculation of what is owed on your mortgage, compared to the property’s current value? This means that your home equity will grow as you pay off your mortgage, but it will also increase as the value of your home rises.

An increase in property value is called appreciation, and it’s one of the most underrated benefits of homeownership. Provided you select a home in a good location and maintain it over time, you will be likely to benefit from home price appreciation. (Of course, market shifts may slow this growth at times, but stricter lending terms and other dynamics mean that fewer homeowners than in the past have the potential to end up underwater.)

As with equity, appreciation works in favor of the homeowner, not the renter. As a renter, the best case scenario would be that your rent remains steady as the value of the rental property grows. A far more likely scenario is that your landlord would raise your rent, keeping it in line with the “market rate.” In that case, you would be paying more to live in the same property over time.

Steady payments

This leads us to our next point, which is that as a homebuyer, you can take out a loan that allows you to steadily predict your housing costs for the next 10-30 years.

When you take out a mortgage, you as the borrower can determine if you want a fixed-rate mortgage, or an adjustable rate mortgage (ARM). With a fixed-rate mortgage, your loan’s interest rate — and therefore your monthly principal and interest payments — will remain the same for the life of the loan. With an ARM, the interest rate will readjust annually, to match current interest rates.

As a renter, you will always be at risk of your landlord increasing your rent, but as a homeowner with a fixed-rate mortgage, you can have peace of mind that you’re relatively insulated from the rising costs of housing.

One final note on this: As a homeowner, you will also be responsible for your annual property taxes and insurance. This means that while your mortgage principal and interest will be set for the life of your fixed-rate loan, your property taxes and insurance costs will likely increase over time.

Freedom, flexibility and control

While the financial benefits of owning a home are very real, it’s also important to consider the mental and emotional perks. Whether you dream of picking out paint colors, planting a vegetable garden or an oversized light fixture above the dining table, it can be difficult to live in a rental once you get the itch to customize your space to your lifestyle. (Who among us hasn’t painted the walls of an apartment a bright color… only to begrudgingly paint them back to “Stark Landlord White” at the end of the lease?)

By owning a home, you’ll have more control over your surroundings, and the freedom to follow your design urges or practical needs. While the upgrades will come out of your own pocket, you’ll also feel a sense of pride as you make almost all of the decisions on your own. (In some cases, you may have to ask for approval on your plans from your HOA or the local government.)

Ready to buy?

If you’re on the fence about buying, we have plenty of resources that can help you assess if you’re ready to become a homeowner. From pre-approvals that check your credit and financial history to assistance with down payment resources, Edina Realty is here to help.

Reach out today for no-pressure assistance from a friendly, local market expert.