5 Reasons Why Buying Your Own Home is a Good Idea

You've probably heard many tout the importance of buying your own home.  Real estate agents, friends, your parents, the media all have something to say about the benefits of home ownership.  In this article, we're going to get into 5 solid reasons you should consider home ownership. 

More...

1) Get What You Pay For ... And Then Some

You've probably heard people say how your home is a great investment.  But what exactly do you get out of the deal?  Two things: leverage and equity. 

Leverage - Real estate is one of those rare opportunities that allows you to control a very large and potentially increasing asset for a comparatively small initial investment (your deposit).  Could you afford to purchase a $550,000 property in cash?  Like most people the answer is probably no.    And because of this, the banks have made it easier to get into property by lending a large chunk of the sale price of the property to the home buyer, meaning that all you need to do is come up with your initial deposit.  

For example: Vicky buys a home for $500,000 with a 20% deposit of $100,000.  She now owns her own asset for a fifth of the purchase price. 

Equity - Over time as you pay your mortgage, two things may happen:  your principal loan balance will go down, and the property’s value may go up. This means you accumulate equity.  Equity is the difference between what your home is worth and what you owe on it. 

Example:  Let’s use Vicky’s example again.  At purchase, Vicky owns a home with a market value of $500,000.  She owes $400,000, which means there is $100,000 equity in the property.

Let’s say that after a few years, she has reduced the principal of the mortgage by $10,000, and the market value of her property increases to $520,000, her new equity would come to $130,000.  That’s $30,000 more than she originally invested. 

2) It Beats Paying Rent

You may have heard the cliche “rent money is dead money”.  Well, when you own your own home, instead of paying for someone else’s investment.  All your ‘rent’ money is going to your very own personal investment - your home. 

And the great thing about a mortgage is that it’s a kind of forced savings plan - you are putting cash away every month, and this is money you may even be able to get back when you sell.  And not only are you turning your cash into an appreciating asset, you’re also putting a roof over your head while you do it - what some might call a "smart investment plan". 

3) You Can Borrow On It

As your equity builds, you’ll eventually be able to borrow against it at lower interest rates than you'd normally get if you were going for a new loan.  The money borrowed can be used in a number of ways - purchasing a car, travel or even another property. 

Some have been known to use their equity to finance their dream wedding.  What's more, there are even loan products that cater to this now.   Cake anyone?

4)  Credit-worthiness 

Mortgages are seen as “good debt” by the banks and other financial institutions.  Making your mortgage repayments on time consistently is seen by credit-reporting companies as a plus, and you will be seen as responsible and able to handle a large loan. 

This will work in your favour when seeking another loan for another property, investment or your own business.

5) It's Yours

And the most obvious benefit is that you are a home owner.  When you finally do pay off your mortgage, you won’t have to fork out for a place to live. Thus reducing your expenses and plenty of leverage for what's next in your life. 

Now you could continue renting the very same place you’re in now for 30-50 years, and not only will the rent you pay be at the whim of your landlord, but you will also never own your own home.  

Summary

In a nutshell, getting into the market will help you for five reasons:

  • You can get into the market with other people's money.
  • You can build equity.
  • You become seen as a good person to lend to.
  • You will be able to borrow on your home.
  • You will own your own home. 

Leave a Reply