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Real Estate

Getting a Mortgage? Why Homeownership is a Good Financial Investment

Everyone has an opinion about buying a home and getting a mortgage. Some people say it is better to rent, whereas others feel it is smarter to buy and not waste money on rent. This is a decision you have to make for yourself. Before you decide, however, make sure you understand the financial differences between buying and renting.

1. You Can Save Money

Housing will likely be your largest monthly expense. But although a home purchase comes with a hefty price tag, a rent vs. buy calculator lets you compare the cost of both options. Surprisingly, owning is sometimes cheaper than renting. In fact, “buying is cheaper than renting in 100 of the largest metro areas by an average of 37.7%,” says a report by Trulia. Ownership not only provides a sense of accomplishment, you can also get more bang for your buck.

2. Enjoy a Fixed-Monthly Payment

Rent is unpredictable considering how landlords can increase rent payments every year. A fixed-rate mortgage, on the other hand, offers peace of mind because your house payment remains the same for the life of the loan. Predictable payments contribute to a sense of stability.

3. Builds Equity

Each mortgage payment reduces your principal balance. The more you pay down your mortgage, the more equity you earn. Owning a home is one of the biggest contributing factors to your net worth. According to Trulia's Chief Economist Ralph McLaughlin,"Owning a home is one of the most common ways households build long-term wealth, as it acts like a forced savings account. Instead of paying your landlord, you can pay yourself in the long run through paying down a mortgage on a house."

4. Resale Potential

Renters make monthly payments every month but don’t benefit financially from these payments. As a homeowner, once you sell your property the proceeds can go towards a down payment on another property. Or another option, use proceeds from the sale to increase your retirement portfolio.

5. Builds Stronger Credit

Each timely payment submitted to your mortgage lender adds positive activity to your credit report. This builds a stronger credit score, which opens the door to better interest rates when you are ready to apply for other types of financing.

Bottom Line

Owning a home isn't without costs. You’re not only responsible for the house payment, but also maintenance and repairs. In the long run, however, a home can be your greatest financial investment and play an instrumental part in your net worth.