Many of us dream of the same thing: finally getting your dream home. The best way to make that fantasy come true with the high real estate prices is a home loan. They come along with a lot of responsibilities but also a lot of rewards. It also gets mortgaged with a bank, or a non-banking financial institution until you repay completely the loan. The title deed of the house is held by the lender until the housing loan amount is repaid in full with the due interest. You must also go through all the options to see which one will fit your plans, and we are here to help. So is owning a home right for you? Here are the main reasons why people decide to own instead of rent.
1) The tax benefits
You can get a tax rebate along with your house loan which will put a fair amount of money back in your pocket, each year. Both mortgage interest and property tax payments can be deductible from federal and state taxes. For example, you have the mortgage interest deduction. It is one of the largest tax breaks offered to homeowners. This option is especially lucrative at the beginning of your mortgage when the major part of what you pay monthly is applied to interest.
2) You are building equity
It is also called the dollar value of your home that actually belongs to you. You calculate it by subtracting the amount you owe on your home loan from the complete value of the house, and the leftover is the home equity. There are two ways to build it :
- When you make your monthly mortgage payment, a piece of it goes toward reducing the amount you owe on your loan, and this increases your equity. You can consider this as a form of savings.
- When the value of your home increases, you gain more equity.
Of course, if in the future you need some money you can tap into it. You have the possibility to borrow against your home equity for education or medical expenses and home improvements. You can as well use it to pay off high-interest credit card debt.
3) Your credit history gets stronger
When the other lenders see that you buy a home and pay your loan always on time, you get more chances to make future great deals. You are a serious borrower and if they choose you, they don’t take risks. It can be useful when you decide to make any new investment when you buy a car, for example.
4) It makes it easy to create your dream home
Homeownership is great when you know that you are free to create whatever environment you like. You don’t need to ask for approval from a landlord. You can finally make your dreams come true. If you want to have pets, to rearrange the floors, do some painting, or add an extra room… Anything that can make your house perfect.
5) It is always a good idea for investment
Staying in your home for a long time can increase in value its price and give you a satisfying return on your investment. When you choose this option, you can be sure in most of the cases that you are right. Also, it saves you from paying rent, and paying for a loan is much more profitable. Although, you must be careful and think about what kind of home loan is the best for you.
Below, you can find some different options for home loans:
Conventional mortgage: This one is the most commonly used type of home loan, and usually gets the best rates. It can last for 15 or 30 years. There is at least 10% for a down payment and a good credit. You have the option “interest only” when you don’t pay any principal in your payment. They have a bit lower payment, and when you make a regular payment you don’t pay off any of the loan balance.
Mortgage insurance: it is important to be aware of this option. This is an additional cost you bear if you put less than 20% on your house. It is intended to protect your lender in case you don’t make payments anymore. When you have at least 20% equity, make sure that you request mortgage insurance be removed (as it’s an unnecessary cost and is not tax deductible).
FHA mortgage: The main benefit of an FHA mortgage is a lower down payment requirement. It’s only 3.5% and is often more flexible with lower credit scores. This makes it easier to qualify for an FHA loan. It’s ideal for first time home buyers.
VA loan: There are more than 25 million veterans eligible for VA financing. You must have served on active duty, no dishonorable discharge and have served a minimum of 90 days during wartime, or 181 continuous days during peacetime. For military borrowers, the VA loans are the best on the market. They have a lot of advantages: they are very flexible, they have no down payment, you can reuse them and the government guarantees them.
USDA rural housing loan: This one can only be used in some specific areas and towns, and they are very flexible. They were designed to improve housing in rural areas. They have a variety of options: you can get it as a single- and multi-family housing, child care centers, fire and police stations, hospitals, libraries, nursing home, schools…
Adjustable rate mortgage (ARM): Their rate is not constant, it can start low but increase after one or several years and it usually gets higher. Be careful with this option because it has got in trouble many house owners, in fact sometimes the rates increase faster than expected.
203k Rehab loan: It allows you to borrow money with only one loan for both home purchase and improvement. They are guaranteed by the FHA, which is great for the lenders as they take less risk when offering you this loan. That way it’s is easier for you to get approved for the loan.