Buying your first home is no easy feat, and it's quite different than buying your forever home. Here are some important considerations!
As of the second quarter of 2021, homeownership in the US was placed by the US Census at 65.4%. While that is lower than last year’s percentage, the fact that it’s only two points lower than last year is a sign that Americans still hold great value over homeownership. Many people are still buying their own homes instead of renting, even during the pandemic.
Having your own home and one’s own land and property indicates stability and independence. Most of all, it’s a sign of good finances and money that isn’t going anywhere anytime soon. And this is precisely why people put their money into real estate.
In fact, real estate has consistently been seen as an excellent investment compared to any other. And historically, especially in the past seven years, people have placed solid trust in real estate as a long-term investment tool.
From what financial consultants and specialists around America have observed, in tandem with the experience of veteran realtors like Cami Jones & Company in Kansas City, homeownership could be the beginning of an individual’s path towards long-term wealth. Having your own home is just the beginning of future financial stability and success.
Homeownership versus Renting
Having your own home is the first step towards stability, and that’s helped along by the policies surrounding homeownership. In the US, getting your own home is supported by federal policy (such as tax subsidy on mortgage interest, numerous federal mortgage guarantee programs, and others).
It’s all part of wealth building. After all, the payment goes to a landlord every month when you rent a home, but you don’t have true ownership over the property. It’s not designed to be a permanent home unless you rent to own.
But when you buy your own home and pay the mortgage, your stake in owning the property with no strings increases with every payment. It doesn’t just lead to equity in your home, but it also increases your own net worth as the homeowner.
The National Association of Realtors has created the formula of personal wealth as associated with homeownership. It sums up to price appreciation gains along with principal payments leading to the housing wealth gain.
And finally, in terms of wealth-building, your home is less susceptible to sudden changes in cost. Unlike monthly rent, your mortgage would stay at a more stable rate every month as a predictable and fixed expense. With rent, you’re not quite sure when you’ll have to shell out a bit more when you renew your lease. But with your own home, you know how much you’ll have to pay until it’s paid off completely and set money aside for other things.
How Does Homeownership Bring You To Long-Term Wealth?
Homeownership leads to the accumulation of wealth or financial assets in the following ways:
As previously mentioned, your home gains value. But as it does, you also get to save some money for yourself through the tax benefits. The policies discussed above on homeownership extend towards tax benefits that vary depending on each state’s laws.
For example, in Kansas City, your property taxes get a rebate based on a local government program. If you’ve lived in Kansas for at least a year, you can get a rebate from the Homestead Refund program of up to $700 a year.
Homeowners may be able to write off specific home maintenance and repair expenses. Don’t forget to check in with your realtor and local state laws to gain these valuable benefits and save up some money to pile up in the long run.
Furthermore, let’s say that you earn a profit from an investment in the stock market. You might have to pay capital gains tax. But if you profit by selling your home, this profit can’t be taxed, apart from some limitations. It’s more money in the bank for you with reduced taxable income.
Let’s say you’re not in the habit of setting money aside consistently. When you’re a homeowner, you’re forced to do exactly that. Part of gaining financial freedom is having a cushion of healthy savings you can add to every month. Without it, the slightest change in circumstances could be catastrophic.
But a home can act like “forced savings.” Your monthly mortgage payment pays your principals and builds your equity. This leads to better net worth, and your money is safe in the form of investment: your property.
Low-interest loan rates
There are also historically low-interest rates with home loans at present. So now is your opportunity to get that home for less. Mortgages usually require you to commit to a specific interest rate until the loan gets paid off. But with the low interest, you won’t be paying as much as you would be on any other instance in time.
Consider all the different channels that can give you home loans and the benefits of each one. Everything from federal loans to local bank loans—consider your options to find the one that benefits your financial plan the most.
Homes gain value with time
And your home isn’t only going to be a means of savings. It could also grow that money in time. In particular, real estate appreciates at a national average of 2% over a month and 14.5% over a year. It’s going to keep appreciating, too; the Federal Housing Finance Agency has a House Price Index that states that homes have averaged an appreciation of 3.6% every year since 1991.
Your home, therefore, will be worth more than what you paid for it years down the line. If you’ve been paying off your mortgage, that will build even more equity in your home and further increase your personal net worth.
Apart from the low-interest rates and tax breaks, homeownership allows you to experience inflation that actually works in your favor. Because home mortgages and property taxes stay more or less the same over the years, you can add it up later down the line to see significant results.
Your return on investment gets more substantial as the years go by. It’s appreciation combined with leverage, and if you used money that wasn’t even yours—let’s say, a bank’s, for example—you could’ve already doubled the investment you made.
The wealth becomes generational
Because real estate and homes continue to appreciate in value over time, the longer it’s kept in your possession, the bigger the returns grow. And real estate assets are easily transferrable, especially between family members. So, the grantor can transfer the wealth attached to the property as easily.
This is wealth that can get passed to later generations. This is one of the reasons that the wealthy ensure that they can set up a trust to hold their real estate assets. At the death of the grantor, the ownership transfers through the trust they have set up. And it’s a lot less complicated than transfers of business assets. Your children will be able to gain the wealth you’ve set up.
Even a starter home can help build wealth
The “starter home” is a common term these days for the initial home that a person buys before they can build enough wealth to purchase a “better” home or a larger one to accommodate a family. But even these starter homes are an excellent way to build wealth.
It’s important to remember that even starter homes are more affordable now. Today’s mortgage rates are seeing historically low numbers, which is why so many people have decided to purchase a home (even just a starter home) during this time. It’s an ideal opportunity to get started on addressing the wealth-building process, and you need less time to build up the down payment.
Apart from all the previously stated benefits, starter homes are still an affordable means of building on your wealth and help you towards your goals. The ideal scenario should show that once you’ve outgrown the starter home, it would’ve already developed significant equity and help you kickstart the process once again with your next home.
It builds your retirement plan
This is one of the best benefits of having a home—you’re essentially paying yourself and paving your way to a comfortable retirement. The equity that’s built up from your homeownership added to your retirement fund, 401(k), and other retirement finances builds to tremendous equity that can bring you an incredibly comfortable retirement.
Even if you consider that retirement is still a long way off, your property can be a significant addition and makes a big difference on how much you’ll end up with when the time comes. Retired renters have significantly less net worth than retired homeowners; the former could have more than $6,000 in net worth, while the latter of the same age could have as much as $320,000 net worth.
Homeownership isn’t just a wise investment: it’s a line towards financial freedom
Becoming a homeowner can completely change your life plan towards financial freedom and wealth building. Numerous benefits come with owning a home, and these benefits can last for years, impacting your personal net worth, financial freedom, and that of your family’s in the future.