Home ownership has always been the first step on the ladder leading to domestic wealth. How Freddie Mac lately posted:
“Home ownership has cemented its role as part of the American Dream, giving families a place that belongs to them, and a way to build wealth over time. This ‘wealth’ is largely built by creating equality … Building equality through your monthly principal payments and appreciation are a critical part of home ownership that can help you create financial stability. “
Home equity is the difference between the current market value of your home and the amount you currently owe to your mortgage. To assess your equity, subtract your mortgage balance from the market value of your home.
You can find out what you owe on your mortgage by looking at your last monthly statement or by contacting your lender. If you need help determining the current market value of your home, contact a local real estate professional.
Is home ownership really a better path to wealth than renting?
Some argue that renting eliminates the cost of property taxes and home repairs. Every potential tenant should realize that all expenses that the landlord incurs (property taxes, repairs, insurance, etc.) are already accounted for to the rent – along with a profit. You don’t save money by renting.
As proof of that, First American broke the net worth of homeowners and tenants by income categories. Here are their findings:Only one income category ($ 127-192K) has a higher net worth for tenants over homeowners. Every other category shows that being a homeowner leads to greater accumulated wealth.
According to the latest Equity Insights Report on Manager of CoreLogic, the average homeowner won $ 17,000 in a tie in just the last year. Here is a decrease in the annual equality gain by state:
When can you cash in on your housing wealth?
Your home equity is part of your total wealth as a homeowner. The two most common ways homeowners can improve their wealth are:
Seller: When you decide to sell your home, the stock you built over time will return to you on sale. For example, if you paid off your $ 200,000 mortgage and sold your home for $ 350,000, you would receive $ 150,000 after closing.
Refinanced: You can refinance your current mortgage and take away some of the stock you have accumulated. With today’s historically low mortgage rates, you may be able to spend a lot of money and keep your monthly payment the same. Fortunately, homeowners today do so responsibly and do not repeat the same mistakes made in 2006-2008, when some earned all their equity to buy luxury items like new cars, abundant vacations, and so on.
How can these options help homeowners?
During these difficult times many households struggle with their housing expenses. Homeowners, because of their equity, have better alternatives. Odeta Kushi, Deputy Chief Economist at First American, lately explained that homeowners financially affected by the pandemic will not necessarily face foreclosure:
“The execution process is based on two steps. First, the homeowner suffers an adverse economic shock … causing the homeowner to default on his mortgage. However, delinquency alone is not enough to send a mortgage to foreclosure. With enough equity, a homeowner has the option to sell their home or exploit their equity by refinancing, to help withstand the economic shock. “
What could the future bring?
Most experts call for home prices to continue to appreciate going forward. La Home Price Expectation Survey, a survey by a national panel of more than a hundred economists, real estate experts and investment and market strategists, indicates that appreciation will continue for at least the next five years. Using their annual projections, the chart below shows the stock rally a buyer might earn by buying a $ 300,000 home this January:
Domestic equality, for most Americans, is the fastest way to build domestic wealth. This wealth gives homeowners more opportunities during good times and in difficult situations.
Content previously posted in Keep Current Things