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How Homeownership Builds Wealth

If there’s anything history has taught us, it’s that homeownership is one of the best ways to build wealth and secure your financial future.

Here are five primary ways being a homeowner can help you accomplish this

  • Homeownership can help create a forced savings. Most people aren’t very good at putting money aside each month, but every financial expert would agree that having a savings cushion is essential for financial freedom. For homeowners, a monthly mortgage payment can act as a forced savings. As you pay down your principal, you build equity, which helps to increase your net worth.
  • Homes usually appreciate in value. While there’s no guarantee that the home you buy will appreciate, there’s a pretty good chance. According to the Federal Housing Finance Agency’s House Price Index, home values have appreciated an average of 3.33% each year since 1991. For instance, if you purchased a home for $100,000 in 1991, your home would be worth almost $250,000 today. In addition to the amount you’d have paid off on your mortgage during that time, this appreciation in value builds even more equity, therefore increasing your net worth.
  • A home is a tax shelter.  Owning a home also comes with tax benefits, such as deductions on mortgage interest, mortgage discount points, mortgage insurance, and property taxes. These may reduce your taxable income and can help you keep more of your hard-earned money.  Please consult your own legal or tax advisor with respect to your personal situation.
  • You can have a fixed, stable housing payment. Renters are susceptible to fluctuating rental prices, which have historically gone up each year. Mortgages, on the other hand, can be fixed, which provides a stable housing payment (principal and interest) that won’t fluctuate over the life of your loan. This will allow you to keep your cost of living down and put more of your money toward savings, investments, or other avenues that can help you build wealth.
  • Homeowners may have a greater net worth. According to the Federal Reserve’s latest Survey of Consumer Finances, homeowners have 36 times more net worth than renters. As of 2013, the median net worth for homeowners was $195,400, compared to $5,400 for renters. This comparison clearly shows the power of homeownership for building wealth.

If you want to gain financial freedom, homeownership is one of the smartest things you can do to help you build wealth for the long-term.

Source Vibrant Living Newsletter July 2017 edition.

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