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Beat Rent Inflation, Plus Other Financial Benefits of Buying a Home

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Did your rent increase significantly this past year? If so, you’re not alone.

U.S. single-family rent was up 12.6% year over year in January 2022. It’s the largest single year growth that’s happened in 17 years, as reported by CoreLogic.

This is just one of many impacts of inflation. But it’s one you can guard against through the purchase of a home.

4 Financial Benefits of Buying a Home

Buying a house or a condo is a big commitment, but it comes with rewards. This includes physical security (it’s nice knowing you’re in control of where you rest your head at night) and financial benefits. Here are some of those potential benefits.

1. Beat Rent Inflation

It can seem daunting to be locked into a 30-year loan.

But consider this – if you have a fixed-rate mortgage, that’s 360 months of housing expenses that won’t budge. Your insurance and property taxes may increase from year to year, but most of your monthly payment will remain the same. You also gain the possibility of eventually having zero monthly payments – if you continue to rent, you won’t have that luxury.

2. Build Usable Equity

As your mortgage balance decreases and assuming your home value increases, you start to build home equity that can be used to achieve your other financial goals. You can use a cash-out refinance or home equity loan to turn the equity into usable cash. The low mortgage rate beats what you’d pay with a credit card or personal loan. This helps you consolidate high-interest debt or fund large expenses like home improvement projects. Or you can use the money for investments or to make a down payment to purchase more property.

3. Gain Tax Advantages

Various mortgage expenses are eligible for income tax deductions in the U.S. This helps lower your taxable income so you can keep more of your hard-earned money. Common mortgage and property-related deductions include:

  • Mortgage interest
  • Mortgage points
  • Private mortgage insurance (PMI) premiums
  • Property tax

Some homebuyers also qualify for a mortgage credit certificate (MCC), which subtracts from the tax they owe. 

Eligibility for deductions or credits may be tied to your tax bracket. Check with a tax professional for details or refer to IRS Publication 530: Tax Information for Homeowners.

4. Create a Source of Passive Income

Depending on the size of your new place and local regulations, buying a home can open the opportunity for rental income.

This could be done by taking on a housemate or utilizing a detached space as a short-term or long-term rental. Either option is a great way to supplement your income and help offset the cost of homeownership.

Save yourself potential headaches by doing your homework to make sure your rental plans are on the up and up. Some suggested steps include:

  • Research city, county, and state regulations so you know what you can and can’t do.
  • Use legal contracts and forms to protect everyone involved. Check your local housing authority department – they often have downloadable resources.
  • Consult with a tax professional to ensure you properly track and report the extra income.

Facing the Rent or Buy Dilemma? Ask Yourself These Questions

If you’re unsure if now’s the right time for you to make the move to homeownership, ask yourself these questions to help move toward a decision.

Do I have enough money saved to cover the costs of a home purchase?

Having a handle on your savings is important. Take a look at what you currently have accrued. You’ll want enough for:

  • Down payment
  • Other closing costs
  • Moving expenses
  • Emergency savings fund
  • Homeowners insurance

Your down payment is usually the largest piece of your up-front costs when buying a home. Depending on your mortgage type, your down payment could be as low as 3.5% of your purchase price. You can get a detailed breakdown of anticipated up-front costs, with our article: Have You Saved Enough to Buy a Home?

Is my credit score high enough to qualify for a home loan?

Your credit score is one of the factors lenders will evaluate when reviewing your mortgage application. It’s calculated using a variety of details from your credit report. There are many credit scoring models – each use slightly different calculations – but these tend to be the highest weighted factors:

  • Payment history
  • Credit card usage
  • Derogatory marks (e.g., collections, tax liens, bankruptcies, civil judgments)

Each lender has their own credit criteria. Generally, higher credit scores increase the likelihood of qualifying for a loan and will result in lower rates and more favorable terms.

Lenders will also look at your income, debt, and available liquid assets (cash), which can help offset past credit challenges.

If you’re worried about your credit score, it’s worth reaching out to potential lenders to ask about their criteria. This also gives you the opportunity to ask your other mortgage-related questions.

Will I be able to afford my monthly mortgage payment?

Affordability is critical. And, unfortunately, it’s often miscalculated. Homebuyers tend to forget to include property tax, insurance, and HOA dues in their monthly payment estimates. Many online calculators also skip these important expenses.

Here’s a mortgage calculator that captures principal, interest, property taxes, insurance, and HOA fees so you can create a realistic budget.

Additional Tools and Information to Help You Make the Move

Buying a home is exciting but an understandably nerve-wracking undertaking. Axos Bank is here to help you prepare.

Take advantage of our free Rent or Buy calculator and Property Valuation tools to arm yourself with the necessary data to make the leap to homeownership. If you’d like more information about going from renter to homeowner, check out our article: Should You Make the Leap From Renting to Homeownership?

Once you’re ready to make the move, let us know. Our team of mortgage experts is here to answer your questions and guide you through the financing process. You can give them a call at 888-546-2634 to get started.

Beat Rent Inflation, Plus Other Financial Benefits of Buying a Home

This blog was published by Axos Bank on June 29, 2022, and last updated on June 29, 2022.

This material has been prepared for informational purposes only and should not be relied on for tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transactions.

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