GET ON THE PATH TO HOME OWNERSHIP NOW !!

BUILD WEALTH WITH HOME OWNERSHIP

Owning your own home is one of the quickest and securest ways to building wealth. The following points are the great features and benefits of homeownership:

• HOMEOWNERS TAX DEDUCTIONS

As a homeowner you get a number of tax breaks simply because you own a home, beginning with a deduction for the interest and property tax portion of your mortgage. This deduction is a great tax advantage for the homeowner because it off-sets the initial financial expenditures when purchasing your home.  This deduction is helpful because during the first years of owning your home you’re primarily just paying off the interest on your mortgage, as opposed to the principal. 

Additionally, as a homeowner, you will also be able to deduct any mortgage points on your loan. Mortgage point deduction, in-and-of-itself, can lead to considerable savings depending on how many points you claim in your tax return. 

Furthermore, as a  homeowner, your payments on your mortgage will, along with an increase in the home's value, result in the building of equity in your home that can be used to refinance into a home equity line of credit with your lender (also known as a HELOC). Under the new tax law,  the interest on HELOC money used for capital improvements to a home is still tax-deductible, as long as it falls within the home loan debt limit.  

• THE THREE HOMEOWNER TERMS TO KNOW 

There are three easy terms that you should learn (or at least be aware of) that directly affect your wealth-building endeavors through homeownership -- "equity", "amortization", and "appreciation".  DON'T WORRY IF YOU DON'T IMMEDIATELY UNDERSTAND THESE TERMS. Your real estate agent and mortgage loan officer will help you understand them.  Also, as a homeowner, these terms become second nature to you over time.

1. "Equity" is the amount (percentage) of ownership that you have in the home.   When you have 100% of the equity in your home, you own 100% (or all) of your home. Here is a basic example: let's say you are going to purchase a single-family home for a price of $300,000; and you have $12,000 for a downpayment.  You therefore need a mortgage loan for the remaining amount of the price of the home--$288,000 ($300,000 - $12,000 = $288,000).  Assuming you get a loan for this $288,000 and purchase the home, your homeownership starts off with an equity amount (or value) of 4% ($12,000 down payment / $300,000 home price = 4%) You own 4% of the value of the home.  
Another way to look at equity is to consider it as the amount of money you can sell your home for minus what you still owe on it.  

2. "Appreciation" is simply another word for "increase". When the value of your home increases, your home is considered to be appreciating.  Here is a basic example: Let's say in January 2012 you purchased a home at its value of $300,000.   In January 2024 the home's value is $420,000 (which is a 40% increase in value).  Therefore, the home has "appreciated" 40% (or $120,000) over a 10-year period. 

3. "Amortization" is simply a schedule of mortgage payments that the borrower will make to the lender over a period of time.  The payments are calculated so that each payment will pay off a certain percentage of the interest being charged to the borrower for the loan, and a portion of the payment will decrease the principal amount that was borrowed.  At the end of the scheduled payments, the loan will be fully paid off (fully amortized).  Over time, more of what you pay each month goes to the principal balance on the loan rather than the interest, resulting in the borrower building more equity.  

• HOMEOWNERSHIP FREEDOM AND PRIVACY 

As a homeowner, you have the freedom to modify your property as you see fit without having to answer to a landlord.  You do what you want because it's your property, not the landlord's.  If you decide to renovate your home, you don't have to seek the permission of a landlord.  You have the freedom to live in your home as you like -- it's your domain. This is a great benefit and feature of being a homeowner that renters don’t get to enjoy.

• PAYMENT PREDICTABILITY 

If you purchase your new home utilizing a fixed-rate mortgage, you’ll pay the same monthly amount for principal and interest consistently until the mortgage is paid off (fully amortized).  Whereas if you are a renter, your landlord can increase your rent obligation at every annual lease renewal. 

•  CREDIT SCORE IMPROVEMENT 

Generally, when you pay rent to your landlord, it does not improve your creditworthiness simply because landlords don't normally report rent payments to credit bureaus.   Even if you pay your rent timely, without latenesses, your on-time payments will have no positive effect on your credit score as a renter.  However, when you are a homeowner, your timely payments are an advantage to your creditworthiness because your lender will report them to the credit bureaus. Paying your mortgage on time improves your creditworthiness. You will not get this same benefit from being a renter. 

• MONTHLY EQUITY BUILDING 

Every month you make a payment on your mortgage, a portion of what you pay reduces the amount of mortgage you owe -- this is the process of "amortization".  This amortization (or reduction) of your mortgage every month causes an increase in your equity. What is important here is that, although your monthly payment remains the same (providing you have a fixed-rate mortgage), the principal portion of your payment increases slightly every month year after year. It’s lowest on your first payment and highest on your last payment. Thus, as the months and years go by, your equity grows! 

•  BUILT-IN SAVINGS PLAN 

As a homeowner, when you make your monthly mortgage payment, you are reducing the amount you owe and simultaneously increasing your equity; but the benefit does not stop there.   Your equity actually translates into cash value. So as your equity grows the more cash you will receive when you sell your home.  Furthermore, as your home appreciates (increases) in value, the growth of your equity value accelerates -- a built-in savings benefit! This is one of the hallmark features of being a homeowner because this helps you to build wealth through homeownership.

•   HOME EQUITY AS A DOWN PAYMENT

The equity that builds up in your home, from the monthly mortgage payments to your lender and the appreciation in value that occurs over a period of time, can be used as a down payment on another property.   The process is simple: That equity may be refinanced into a Home Equity Line of Credit (HELOC), which in turn could be used as a down payment for the purchase of your next property. If you desire, that second property can be allocated as an investment property. This can be one of your repeated strategies in building your wealth as a homeowner.