Benefits of Homeownership

Owning a home is the American Dream! Our current tax laws and housing policies favor homeownership for good reasons. Homeownership not only benefits the individual homeowners, it also benefits the community.

Build Long Term Financial Security

Owning a home is a great way to create wealth and pass it on to your family, to build a nest egg for college or retirement and to protect against life's setbacks. This is especially true in today's market where mortgage rates are near historical lows and where home prices in many cities and neighborhoods are still substantially lower than they were at the height of the market in 2006-2007.

  • According to Freddie Mac, in 1981 the national average interest rate on a 30-year fixed rate loan was 16.83%. This rate as of December 2013 was below 4.50% but is expected to rise in 2014.
  • Despite the sharp decline in home values after the housing bubble burst, the median sale price for existing single family homes in Los Angeles County as of December 2013 was still 205% higher than the median sale price in January of 2000 which translates to an average compounded annual appreciation rate of 5.31%.

More Resources for Housing Price Trends:

  • The Federal Housing Finance Agency tracks housing price trends across the country. Its House Price Index breaks down the changes by region, state and metropolitan statistical areas and divisions.
  • Standard & Poor’s Case-Shiller Home Price Indices also provide valuable information on current and long-term housing price trends.
  • Another good source of information is which will provide you with neighborhood specific information for Los Angeles County.

The strong potential for appreciation over the long term is a significant advantage of homeownership.

Valuable Tax Benefits

You will save taxes

  • when you buy your home
  • while you own your home
  • when you sell your home

Mortgage interest payments, mortgage insurance premiums, points you paid on your mortgage loan and real property tax payments are generally tax deductible subject to certain limitations, exceptions and exclusions. These tax deductions can substantially reduce your effective monthly housing payment and save you thousands of dollars yearly depending on, among other things, your income tax bracket.

Another superb tax benefit is the capital gains tax exclusion when you sell your home. As long as you owned and lived in the home for two of the prior five years before you sell your home, you will not pay any taxes on the first $250,000 in capital gains or $500,000 if you are married and filing jointly.

Buying a home is a huge step, but deductions available to you as a homeowner can substantially reduce your tax bill. Try our Tax Benefits Calculator to see what impact those deductions could have on your bottom line.

For more information and personalized tax advice, you should consult with your financial advisor or tax professional.

You can also review the following publications from the IRS:

  • Pub. 530 Tax Information for Homeowners
  • Pub. 936 Home Mortgage Interest Deduction
  • Pub. 523 Selling Your Home

Stable and Predictable Housing Payment

With homeownership, your housing payment will be stable and predictable making it easier to plan and budget. You will no longer be subject to the vagaries of the housing rental market where rental rates may fluctuate significantly and unpredictably. With a fixed rate mortgage loan, your principal and interest payment amount will never change and your regular real property taxes are limited to 2% annual increases as long as you own your home and there is no "change in ownership" or "new construction."

Even with an adjustable rate mortgage loan where your monthly principal and interest payment is subject to periodic adjustments after the initial fixed rate period expires, there is some predictability. With adjustable rate mortgages, you and your lender will agree at the time the loan is made on certain caps limiting how much the interest rate can go up in any one adjustment period and limiting the maximum interest rate that you can ever be charged.

Freedom to Remodel, Improve and Customize Your Living Space to Your Taste and Capture the Benefit of any Increase in Value

As a renter you may understandably be reticent to spend any money to improve your living space when your landlord will ultimately reap the rewards of the increased property value. Even if you are willing to spend money on a home that you do not own, your landlord may not give you permission to do the remodels that you would like to make. As a homeowner, you can freely customize, remodel and improve your home to your own taste. You can choose any paint colors that you like, remodel the kitchen or add on a new room and you will be the one to directly benefit if your remodels or improvements increase the value of the home.

Ability to Borrower Against the Equity in the Home

Each month that you make a mortgage payment, a portion of that payment will be applied to reduce the outstanding principal balance of your loan. Over time as you continue to make your monthly mortgage payments and as home values appreciate, you will start building equity in your home which can be utilized to draw on in time of need or for your general convenience. If you are in need of emergency cash or have high interest credit card balances that you would like to pay off or maybe you want to remodel your home or pay your kids' college tuition, you can apply for a home equity loan or line of credit and borrow against your home's equity. The interest rate on home equity loans are often much less than the interest rates charged by credit card companies and incredibly, interest paid on a home equity loan of up to $100,000 can, as a general rule, be tax deductible no matter how you use the money.