Gaining Financial Freedom Through Homeownership

Posted on April 20, 2021 by - Finance, Home Ownership

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Purchasing your first home can work for you in many more ways than one. A home purchase is not simply a roof over your head and cozy walls around you (though that definitely helps) – it’s a path to financial freedom.

It’s a well-known fact that homeownership can play a very important role in your financial stability. Solid financial stability means that you have more freedom in pursuing your life goals.

This is great, but how can you make your home purchase work for you?

More Capital Through Forced Savings

The term “forced savings” can sound a bit negative, but it’s actually a very positive thing, especially in homeownership. As you make mortgage payments, you pay down your principal and interest. Therefore the amount you owe relative to your home’s value builds equity, thus increasing your net worth.

Forced savings occurs because, in order to keep your property, you must make mortgage payments. As the balance for principal and interest decreases with each payment, this can be considered savings.

In other words, forced savings through mortgage payments create a “cushion” so to speak, which brings you closer to your financial goals, and to your financial freedom.

Freedom Through Property Value

Typically, all properties appreciate in value. While there’s no guarantee that the value of your home will appreciate over time due to housing market fluctuations and the state of the economy, the majority of homeowners do experience an increase in the value of their home over time. 

According to the Federal Housing Finance Agency’s House Price Index for Arizona, the appreciation on homes is tagged at 14.1% (on average) per year, since 1991.

With each mortgage payment, you also decrease the amount you owe on your loan. As the value of your home appreciates, the difference between your home value and the amount you owe results in more equity, increasing your net worth.

Fixed Housing Costs

Having a fixed, stable housing payment can help to keep more of your hard-earned money in your pocket. Renting property is subject to fluctuating rental prices, and of course, no equity can be built through making rent payments.

In contrast, mortgages can be fixed, which protects you from fluctuating housing costs. With fixed living expenses, you can keep your cost of living down and plan for savings more accordingly. 

You may even decide to put extra capital towards investments or other avenues that help you build more financial freedom.

Homeownership Creates a Tax Shelter

When earning a profit from investments, even if the profit was made through property investments, a capital gains tax must be paid by law. However, the profit you make from selling your home can’t be taxed this way (though there are some limitations). This keeps more money in your savings account, as less is being put towards taxes.

There are also many other tax benefits that come with being a homeowner, such as tax deductions for mortgage interest and property taxes. Therefore, owning a home can reduce your taxable income and help you to save more money in the long run.*

Homeowners Have a Greater Net Worth

According to a recent article by Forbes, the net worth of homeowners is 40 times greater than it is for renters, despite the pandemic. This data is based on the Federal Reserve’s 2020 Survey of Consumer Finances. 

In the survey, it was found that homeowners had a median net worth of $255,000, while renters had a median net worth of $6,300 in 2019. 

Peace of Mind

It may be easy to disregard the importance of mindset on financial freedom. However, you must make responsible financial decisions to own a home – such as making your mortgage payments on time, planning and saving for a down payment on a new home, or even planning how to make improvements to your home in order to increase equity and value. 

This mindset can have a positive impact on other financial decisions as well. Saving, spending, and investing can all be positively affected through homeownership and can encourage better habits when it comes to managing your money for increased financial freedom. 

Owning your own home is a no-brainer when it comes to building a solid financial future. The freedoms and responsibilities of homeownership can have lasting effects, for years to come. 

Buying a home is one of the smartest things you can do to help you build wealth for the long term, and it surely helps to secure your financial future.

*Harrison Real Estate Group is not a tax advisory firm. The information contained in this article is for informational purposes only and may not reflect current tax year rules and regulations. Consult your tax advisor or the IRS for current tax year rules, restrictions, and regulations.

75 comments on “Gaining Financial Freedom Through Homeownership”

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    I may need your help. I tried many ways but couldn’t solve it, but after reading your article, I think you have a way to help me. I’m looking forward for your reply. Thanks.

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