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How Homeownership Builds Wealth

The 4th of July is more than just a day for celebrating the freedom we gained as a nation nearly 250 years ago. It's a day for celebrating the individual freedom and opportunity afforded to each American — freedom that lets you reach for the stars and create the life you've always dreamed of. A part of that freedom means having the financial stability you need to pursue your life goals, and the earlier you secure financial freedom in life, the more opportunity you'll have to make your dreams a reality.

If there's anything history has taught us, it's that homeownership is one of the best ways to build wealth and secure your financial future.

Here are five primary ways being a homeowner can help you accomplish this:

Homeownership can help create a forced savings. Most people aren't very good at putting money aside each month, but every financial expert would agree that having a savings cushion is essential for financial freedom. For homeowners, a monthly mortgage payment can act as a forced savings. As you pay down your principal, you build equity, which helps to increase your net worth.

Homes usually appreciate in value. While there's no guarantee that the home you buy will appreciate, there's a pretty good chance. According to the Federal Housing Finance Agency's House Price Index , home values have appreciated an average of 3.33% each year since 1991. Based on this information, if you purchased a home for $100,000 in 1991, your home could potentially be worth almost $250,000 today. In addition to the amount you'd have paid off on your mortgage during that time, this appreciation in value builds even more equity, therefore increasing your net worth.

 

A home is a tax shelter.* When you earn a profit from a property or investment (say, the stock market), you normally have to pay capital gains tax. But if you make a profit when selling your home, that profit can't be taxed (with some limitations), which keeps more money in your pocket. Owning a home also comes with other tax benefits, such as deductions on mortgage interest, mortgage discount points, mortgage insurance, and property taxes. These reduce your taxable income and can help you keep more of your hard earned money.

 

You can have a fixed, stable housing payment. Renters are susceptible to fluctuating rental prices, which have historically gone up each year. Mortgages, on the other hand, can be fixed, which provides a stable housing payment that won't fluctuate over the life of your loan. This will allow you to keep your cost of living down and put more of your money toward savings, investments, or other avenues that can help you build wealth.

Homeowners have a greater net worth. According to the Federal Reserve's latest Survey of Consumer Finances, homeowners have 36 times more net worth than renters. As of 2013, the median net worth for homeowners was $195,400, compared to $5,400 for renters. This comparison clearly shows the power of homeownership for building wealth.

If you want to gain financial freedom, homeownership is a no ­brainer. Buying a home is one of the smartest things you can do to help you build wealth for the long ­term.

*For information purposes only. Consult your tax advisor for more details.