How Does Homeownership Lead to Greater Net Worth?
What is net worth? As a first-time home buyer, why is it one of the top numbers you should be keeping track of? These are common questions buyers have when purchasing a home, especially younger buyers.
Net worth is described as the best way to understand your personal financial health and to reveal the progress you’re making toward saving and paying off debt. Basically, your net worth is all of your liabilities (or what you owe) subtracted from your total assets (what you own). An income may fund your daily expenses and pay the bills, but it’s your net worth that gives long-term financial security. Homeownership is a central part of the equation and is a singular wealth-building method in the U.S. economy today.
Homeownership builds wealth in two majors ways: through the “forced savings” of paying down a mortgage and through appreciation, or the increasing equity of your home. Self-made millionaire David Bach states that not prioritizing homeownership is “the single biggest mistake millennials are making.” The earlier you can get in the game of purchasing a home, the quicker appreciation begins working in your favor. Buying a home is “an escalator to wealth,” Bach told CNBC.
For the fourth year in a row, Gallup reported that Americans picked real estate as the best long-term investment when given the choice between real estate, stocks, gold, savings accounts/CDs, or bonds. This year’s results showed that 34 percent of Americans chose real estate, followed by stocks at 26 percent.
Your house is typically your most valuable asset, but can simultaneously be your biggest liability depending on how long you’ve been paying on your mortgage. The longer you’ve been paying on your mortgage, the greater equity you have in your home – or the more net worth you have, because you own that portion of your home. For example, if your home is valued at $200,000, and you currently owe $150,000 on your mortgage, your home will add $50,000 to your net worth.
Now that we have a basic understanding of net worth and how your home plays a part in it, you may be wondering – why does this even matter? Monitoring your net worth provides several benefits. It can help you identify areas where you’re spending too much money, it provides a realistic picture of whether or not you’re spending beyond your means, it can help you formulate a better plan to pay down your debt sooner, and it may even encourage you to begin saving or investing in other ways. Overall, your net worth helps you to evaluate where you are now financially, and helps you make decisions that will affect how you reach your future financial goes, whether that is purchasing a second home or simply becoming completely debt free.
If you’re ready to begin growing your net worth through homeownership, now is a great time to buy a new home! Our new homes in Virginia Beach and Chesapeake offer spacious, open floor plans in the form of single-family homes, condos or townhomes in Hampton Roads’ best communities. Visit www.dragas.com today to learn more!