If you are like many first-time buyers in the Bay Area, you have listened to the advice of many people in your life who have encouraged you to buy a home of your own and give up renting. You may have reservations, however, and wonder if buying a home is really the right step for you to take. Having doubts is completely normal, but the more you know about the process, the less scary and overwhelming it will seem. Here are several good reasons to buy your own home.
Mortgage Interest and Property Taxes are Deductible
As a home owner in the Bay Area, tax rates will favor you. Mortgage interest you pay is fully deductible on your tax return, and the interest is the largest component of your mortgage payment for the beginning of the life of your mortgage. Real estate property taxes on your primary home (and a vacation home) are also deductible.
Provided you have lived in your home for 2 of the last 5 years, you can exclude up to $250,000 (as an individual) or $500,000 (if you are married) of the profit from capital gains when you eventually sell the home. You do not need to buy a more expensive home or replacement home in the Bay Area, and there is no age restriction. You may exclude these thresholds from taxes every 2 years, which means you can sell a home every 2 years and keep the profit with no taxes owed.
If you do receive more in profit than the exclusion when you sell, the extra profit will still be considered a capital asset provided you owned the home for at least one year. These capital assets receive preferential tax treatment with a much lower tax rate
Pay Your Mortgage and Build Equity
Every month, a portion of your monthly mortgage payment in the Bay Area will be applied to your principal balance. The amount that goes toward the principal is lowest on your first payment and increases steadily. On average, every $100,000 in a mortgage reduces in balance the first year by $500 in principal, bringing the balance at the end of the year to $99,500.
When you carry credit card debt in the Bay Area, you cannot deduct the interest you pay, which often reaches up to 22%. Equity loan interest, however, is much lower and fully deductible. This is why many homeowners find it makes more sense financially to pay off debts with a home equity loan. Homeowners may also tap into their equity and borrow against it for college, home improvements or even starting a business.
While real estate value moves up and down, it does consistently appreciate. Many homeowners in the Bay Area view their home as a hedge against inflation, as property values tend to go up over time.
Pride of Ownership
Finally, pride of ownership is perhaps the number one reason that drives people to buy their own home. When you buy a home in the Bay Area, you can paint it any color you like and decorate the home however you want. If you like, you can spend your afternoons beautifying your own lawn, or install a pool, and there is no landlord to deal with. You are making an investment in your future, and giving your family security and stability.