Every three years, the Federal Reserve conducts their Survey of Consumer Finances in which they collect data across all economic and social groups. Their latest survey data, covering 2013-2016 was recently released. It revealed that the median net worth of a homeowner was $231,400 – a 15% increase since 2013. At the same time, the median net worth of renters decreased by 5% ($5,200 today compared to $5,500 in 2013).
These numbers reveal that the net worth of a homeowner is over 44 times greater than that of a renter.
Owning a Home is a Great Way to Build Family Wealth
As we’ve said before, simply put, homeownership is a form of ‘forced savings.’ Every time you pay your mortgage, you are contributing to your net worth by increasing the equity in your home.
So what is equity? Equity is the portion of a home that owners actually own. For instance, if someone puts a 20% downpayment on a property and borrows 80% of the price from a lender, they really only own 20% of that home. The other 80% is not owned by the lender, but it is used as collateral for the loan. When you pay your mortgage, the percent that you own goes up, along with your equity and net worth.
Real estate is known for being an excellent and enduring investment. If your property increases in value, it should generate passive income and lots of it. This is why it’s no surprise that, for the fifth year in a row, Gallup reported that 34% of Americans chose real estate, followed by stocks at 26% and then gold, savings accounts/CDs, or bonds.
Going From Renter to Owner
There is a misconception that to buy a home you need tens of thousands of dollars to do so, however, this notion is outdated. Danielle Bulla Isenhour from Coastal Property Doctors, LLC explains:
“I believe this theory came from the potential buyer asking friends or family for advice, not a professional. Many times, a young buyer will ask a parent or grandparent about financing. When the parent or grandparent purchased their home, interest rates were much higher, sellers rarely assisted with settlement expenses, and you needed about a 20% down payment,” said Isenhour. “Times have changed, so it is wise for potential home buyers to contact a professional in that field for the most up-to-date information.”
Consumers often overestimate the funds needed to qualify for a home loan. A recent survey from Laurel Road, the National Online Lender and FDIC-Insured Bank showed that 53% of prospective American buyers are concerned with affordability while 46% of millennials do not believe that they can come up with a 20% down payment. What they fail to realize is that they don’t need to. There are programs available to assist new home buyers, allowing them to borrow with 3% down payments. Sometimes even less!
This is why contacting a real estate professional is so beneficial. We know the options better than most.
The Bottom Line
Buying or upgrading a home can seem intimidating, but it’s easier and more doable than you think. And the equity you acquire makes the investment a no-brainer. Want to start increasing your net worth? Contact us for a free consultation.