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Purchasing a home this year can be one of the simplest ways to start building wealth. If this is your first time considering building wealth by owning real estate, a quick overview of how a 2021 home purchase can and does lead to financial freedom may be beneficial.
For most people achieving the American dream means owning a home and having financial stability. Moreover, neither of these things are mutually exclusive. In other words, for many, the ticket to financial stability/freedom to pursue one’s life goals is through homeownership. That said, here are a few ways that being a homeowner can help you accomplish this.
Purchasing a home can build wealth in several ways. For starters, homeownership tends to create forced savings for most people. Typically, people will put away a nominal sum of money for a rainy day, but when you know you need to save up for a large purchase, then you are more likely to go above and beyond to put money aside each month.
If you ask any financial expert, they will tell you that having a savings cushion is essential for financial freedom. Moreover, for homeowners, a monthly mortgage payment can act as forced savings—as you pay down your principal, you build equity, ultimately increasing your overall net worth.
Yet another way a home purchase increases your net worth is via appreciation. Homes generally appreciate in value. Of course, there is no guarantee that the home you buy will appreciate, but the odds are definitely in your favor. In fact, according to the Federal Housing Finance Agency’s House Price Index, home values have appreciated an average of 3.5 to 3.8 percent per year, given local market trends and the economy.
So, let’s say you made a home purchase for $150,000 almost ten years ago, with a 3.6 percent annual appreciation; your home would be worth somewhere around $215,000 today. What’s more, the amount you would have paid off on your mortgage during that time, this appreciation in value builds even more equity, therefore increasing your net worth.
Speaking of your home loan or mortgage, you can also opt for a fixed, stable housing payment. This means you are not subject to fluctuating rental prices, which tend to go up each year. Thanks to your mortgage (fixed), you do not have to worry about your payments fluctuating over the life of your loan.
As a result, it is easier to keep your cost of living/housing down and put more money into savings, investments, or other wealth-building avenues. Plus, recent data from the Federal Reserve indicates that, on average, homeowners have 40 times more net worth than renters.
Additionally, owning a home means you have a tax shelter. A prime example of this is if you make a profit when selling your home, for the most part, that profit cannot be taxed (with some limitations).
This means you essentially get to keep more money in your pocket. Furthermore, owning a home also comes with other tax benefits, such as deductions on mortgage interest, mortgage discount points, mortgage insurance, and property taxes. All these aforementioned tax benefits can help to reduce your taxable income and ultimately allow you to keep more of your hard-earned money.
So now that you know you can build wealth through homeownership, you might think you need to buy the more expensive house or the turn-key home of your dreams to end up on top. But the good news is you can actually break into the housing market with a starter home.
As the name suggests, a starter home is a somewhat modest home that might not have all your must-haves or might need some work. However, the great thing about starter homes is that they are typically more affordable, and they allow you to get your foot in the door of homeownership.
Of course, you can skip the starter home if you prefer. But with high demand and less than six months’ worth of home inventory in most markets, a starter home can help you build wealth sooner rather than later.
Plus, when you are ready to purchase your forever home, you can either sell your starter home or rent it out and thus turn your starter home into a long-term asset/an additional income source.
As previously mentioned, homeowners have equity, and right now, the future looks bright according to home price appreciation forecasts. In fact, current data suggest that the median-priced home in the country sells for approximately $408,800, and the majority of homes are predicted to appreciate by as much as 5 percent if not more this year (the average of the forecasts).
Consequently, homeowners will likely see an increase in their wealth by more than a couple thousand dollars by the end of 2021 through increased equity alone. Thus, as you can see, if you want to gain financial freedom or rather build wealth, homeownership is a no-brainer.
Ultimately, buying a home is one of the smartest things you can do to build wealth for the long term. And right now is the perfect time to jump into homeownership. So what are you waiting for? Contact a local mortgage professional for further assistance and start the homebuying process.
Do you have questions about home loans or how you can get approved? If so, Sammamish Mortgage can help. We are a local mortgage company from Bellevue, Washington, serving the entire state, as well as Oregon, Idaho, and Colorado. We offer many mortgage programs to buyers all over the Pacific Northwest and have been doing so since 1992. Contact us today with any questions you have about mortgages.
S&P Case-Shiller Home Price Indices reported the fastest pace of U.S home price growth since 2005.
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