Did you know that purchasing a home is a foundational step for building wealth? There is a strong correlation between higher household net worth and homeownership. In fact, a report from The Survey of Consumer Finances, released in Sept. 2020 by the Federal Reserve, found that in 2019, homeowners in the U.S. had a median net worth of $255,000, while renters had a net worth of just $6,300! See the ways in which home ownership helps build wealth below!
What is home equity? Home equity is the current market value, minus any liens such as a mortgage payment, on your home. Home equity begins with the down payment on the home, the larger the down payment, the larger your starting equity. As your pay off more of your mortgage through monthly payments, your home equity will continue to grow. Property appreciation also benefits your home equity value.
Many people can struggle to actively put aside money each month to go towards savings, but having a cushion is key to financial freedom. As a homeowner with a monthly mortgage payment, this acts as a forced savings. The more you pay down your principal, the more equity you will build which in turn will benefit your net worth.
When you purchase a home, there’s no guarantee that the property will appreciate over time. However, historically, there’s a high probability it will! According to the Federal Housing Finance Agency’s House Price Index, home values have appreciated an average of 3.6% each year since 1991. As your home appreciates in value, it builds additional equity and increases your overall net worth.
Fixed, stable housing payment
Renters are constantly at the mercy of fluctuating rental prices, which have historically gone up each year. If you have a home mortgage, however, you benefit from a long-term fixed housing payment throughout the duration of your loan. Having a fixed and stable payment for housing can help you keep your cost of living down and allow you to put more money into savings, investments, and more.
A home is a tax shelter
Did you know that owning a home comes with tax benefits? You can deduct your mortgage interest on your loan and you can deduct property taxes up to $10,000 each year on your tax return. These deductions will reduce your taxable income and helps you keep more money in your pocket. Consult with a CPA for a breakdown of how much money you can save with these deductions for your home.
With all the above in mind, if you’ve been thinking about taking the plunge to buy a home, today is a great day to start the journey! Contact the experts at Finch & Gable to get one step closer to home ownership!