Although the 2017 housing market showed increasing home prices and tight inventory, ambition to become a homeowner remains high for many Americans. In fact, 93 percent of adults still believe homeownership is a crucial part of the American Dream. For many, it not only represents an achievement of hard work, but also serves as a critical way to build wealth for financial security. More specifically, according to NeighborWorks America’s fifth annual national housing survey, 81 percent of adults and 71 percent of Millennials perceive homeownership as a main source of financial security. There is one popular reason why so many current and potential homeowners think this.
Similar to many smaller-scale investments, homes have the ability to appreciate over time. As we saw last year, home prices steadily rose and they are expected to continue rising throughout the upcoming year (although slowly). With these rising home prices, homeowners have the opportunity to build valuable equity. Apart from popular belief, this equity builds not only on the payment amount a homeowner makes on the home, but also on the amount they borrow for the home loan. In other words, if your home appreciates 3% throughout 2018, you will NOT earn 3% on the $15,000 you put down, but rather 3% equity on the entire $150,000 value of the home.
In addition to property value appreciation, homeowners can build equity quickly by adding to or renovating their homes. With a Fannie Mae HomeStyle loan, for example, homeowners can purchase and renovate or refinance and renovate a home without the hassle of a second mortgage or home equity line of credit. As long as the renovation is permanently affixed to the property, this loan option is a great way to build additional equity.
Overall, homeownership is a great financial investment, especially for building wealth and establishing financial security. As equity builds, so does the homeowner’s net worth. For more information about building equity, or to learn more about home financing, contact one of our mortgage specialists today.