Owning a home is the American dream. Aside from the pride and newfound freedoms that come with the purchase of a home, homeownership grants you a plethora of lifelong benefits.
First and foremost, purchasing a home gives you the power of equity. Equity is essentially the difference in your home’s value and what you owe on a mortgage. For instance, if your home is valued at $300,000 and you owe $200,000 on your mortgage loan, you have $100,000 equity in your home. Real estate historically appreciates, so your equity can grow every year beyond what you pay down on the loan.
Unlike a rent payment, each mortgage payment builds equity in your home. Instead of making monthly payments to a landlord, you can think of it as paying yourself!
The down payment on your home will be your first step towards building equity. Depending on your mortgage, you could put down as little as 0%! However, opting for a larger down payment will increase your equity, and over 20% down will help you avoid private mortgage insurance.
Once you’ve established equity in your home, you open the door to a home equity line of credit (HELOC). There are many different ways to get a HELOC and can even get up to 90% of your home’s value, minus your remaining mortgage. So, if your home is valued at $300,000 and you have $200,000 remaining on your mortgage, your HELOC would be $300,000 x .90 – $200,000, giving you an available balance of $70,000.
This credit line is yours to use as you please and you only pay interest on what you use! It can be used to cover emergency expenses, college tuition, consolidate high-interest debts at a lower interest rate, or put towards an investment where you’re expecting returns greater than your HELOC interest rates. Many people choose to take out a HELOC against their home to fund an additional, income producing property. Many real estate investors get their start by using the HELOC to start their empire!
If nothing else, homeownership provides a level of stability. You can expect fixed rate mortgage payments with no concern for rent spikes or eviction, allowing you to budget and plan for the future.