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Three Ways Homeownership Can Build Wealth

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President | CEO | Churchill Mortgage Corporation.

Today’s “get-rich-quick schemes” prioritize largely digital gains. But, individuals often overlook, or simply forget, one of the most effective and tangible methods of building real wealth—homeownership.

The path to homeownership can seem daunting and unobtainable, especially in this market, but it is imperative to understand the long-term ramifications on your financial health when considering all housing options. Understanding the potential benefits of homeownership helps individuals see the value of owning property instead of renting.

Renters miss out on equity, mortgage interest deductions and the long-term economic advantages that come through wealth-building. A home is a significant purchase and can be expensive initially, but when contemplating the fees and benefits you miss out on with renting, buying a home is almost always a better investment in the long run.

The homeownership rate across the nation is declining, as many Americans continue to rent in greater numbers. According to iProperty Management, in the first quarter of 2022, the nationwide homeownership rate was 65.4%. While there are still more homeowners than renters nationwide, the gap between the two is shrinking as housing costs continue to climb. Another key factor to consider is household wealth among homeowners is a whopping 1,469% higher on average compared to renters, excluding home equity, making the allure of homeownership even more enticing.

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As a mortgage professional with over 30 years in the industry, I know the ins and outs behind why owning a home can make a huge difference in one’s financial well-being. While it often seems easier to rent, here are three ways in which homeownership can generate long-term wealth:

The value of your home may appreciate, adding to your net worth and future resale value.

Home appreciation is based on many factors, including the economy and location, but national appreciation values average around 3.5% to 3.8% per year. If you choose the right home, often in a developing or attractive neighborhood, you could see a steady increase in home value over time. Once you surpass your home’s purchase price, then you may be able to cash in on your home’s higher value.

Rents also tend to increase over time due in some part to the same increased costs of a homeowner and your landlord is passing those cost increases on to you as the renter, and this of course can create financial strain and unnecessary stress for renters. In addition, any type of improvements to your home not only benefit your quality of life while living there but are also a form of investment, as they can increase your overall home value down the road.

Owning a home allows you to build equity versus paying rent, where you don’t gain ownership of any kind.

Homeowners will be able to capitalize on their equity, which accumulates over time when they decide to sell. Even if they are unable to pay off the mortgage in full before selling, owners still see a monetary return, which fluctuates depending on the time spent owning the home and the mortgage type. If homeowners are able to pay off their homes, they will be able to live mortgage-free, drastically reducing their cost of living and helping to support a comfortable retirement.

Renters typically do not receive any kind of return on their rent costs, which according to Realtor.com, consumes 32% of the typical American’s yearly income on average. Rent is money that you don’t receive back, and it funds someone else’s investment. Understand, paying rent just gives a renter the absolute right to live in that rental unit for 30 days. Nothing more.

Homeownership makes you eligible for mortgage interest deduction and other tax deductions.

The IRS offers tax breaks to make homeownership more affordable by reducing your tax bill. Mortgage interest deduction allows homeowners to deduct the interest they pay on mortgage debt as just one example.

Consider for a moment that when one is renting, they are in essence still purchasing as the rent they are paying each month is actually going toward purchasing the home, and yet only for the owner/landlord, not the renter. So, it is usually very helpful to sit down with a home loan mortgage professional to walk you through how to begin the process of home ownership.

A professional can provide you with actionable steps toward becoming a homeowner so you can potentially gain the significant benefits of ownership. Ask the mortgage professional to provide you with a clear and valuable pre-approval, which can then help you go into the market with confidence that you are qualified and knowledgeable when purchasing a home.

There are many things to consider when purchasing a home. For example, what are the down-payment requirements, what are the best financing options and what price range should you be considering based on your debt-to-income abilities. Doing this can help you avoid some of the normal homebuying obstacles most usually encounter. This will help you make a more informed decision versus possibly making some mistakes that can be quite costly.

Additionally, homeownership brings intangible benefits such as a sense of accomplishment, agency over your space and a feeling of stability. Whether you choose to rent or buy, it’s important to be fully aware of the options available and consider your own financial and personal situation.

Homeownership may not be for everyone regardless of the potential positive effects. Focus on the long-term goals you have in mind and consider the steps you must take to achieve them. Wealth won’t always come from a “get-rich-quick” scheme, but you can build it through the power and freedom of homeownership.

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.


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