With Independence Day around the corner, we’re reflecting on what it means to be American. There is so much to be thankful for as we celebrate our freedom on the 4th—such as the dream that America was founded on.
The American Dream stands for democracy, rights, liberty, opportunity, and equality. It is the idea that every American should have the same opportunity for success, and upward mobility for themselves and their family. An overwhelming majority of Americans still believe in the American Dream, and 87 percent of consumers say that owning a home is part of the American Dream, according to National Association of Realtor’s (NAR) consumer survey.
Why has homeownership long been an important part of attaining the American Dream? One reason is that homeownership has helped millions of Americans build wealth through equity. “Your home’s increasing equity is a huge first step in growing one’s wealth,” said Ashley Knapp, Loan Officer with TowneBank Mortgage in Virginia Beach. “Buying a home is a great representation of the American Dream. It is an accomplishment, it shows a steady income, and for many gives a feeling of stability and success,” Ashley said.
Statistics show that the biggest contributor to Americans’ net worth is their home’s equity. That means that when you purchase a home, it likely becomes your biggest investment.
In fact, a homeowner’s net worth is 36 times greater than that of a renter ($194,500 vs. $5,400), according to the Federal Reserve’s most recent Survey of Consumer Finances (2013). In 2016, that gap was predicted to rise to 45 times greater.
“There are many reasons why a homeowner’s net worth would be greater than that of a renter. A fixed mortgage payment provides a hedge against rising rents. Rent has been on a steady rise in recent years, with no indication of slowing down. If you have a mortgage with a fixed rate you are locking into that monthly loan payment for the next thirty years. This hedging frees up your cash flow to save or invest,” Ashley said. “Paying a mortgage is also a forced savings in and of itself. As the principle is paid down, your equity increases, which can help pay for retirement, children’s college expenses, or other major life events.”
Plus, owning your own slice of the American Dream means the freedom of being your own landlord. “Paying rent is really just paying someone else’s mortgage for them. Why not pay your own, and grow your own wealth?” Ashley says. “Being a homeowner also allows you to make the space your own, and love the space you live in. Build the tree house for your kids, paint the kitchen the color you love, install the tile in the bathroom you pinned on Pinterest….we spend much of our lives in our homes, and they should be a place we love.”
Homeownership isn’t just good for your wallet, it’s good for the community and the economy as well. Homeowners are more likely to be involved in community civic engagements, volunteer work, and elections compared to renters. Children of homeowners do better in school, and are less likely to participate in crime and drug usage. NAR reports also show that one new job is created from every two home sales.
It’s no wonder that the government provides incentives for homeowners, especially first-time buyers who might not have perfect credit or large sums of money for a down-payment. “The IRS offers tax breaks to homeowners that renters miss out on. Your mortgage interest and real estate taxes can be a huge deduction,” Ashley says. “FHA mortgages are back by the government agency known as HUD (Department of Housing and Urban Development.) An FHA loan is a great option for homebuyers with limited or less than stellar credit history, and they allow as little as 3.5% as a down payment. FHA loans have allowed many people to own a home that otherwise would not be able to.”
Although homeownership rates have dropped consistently since peak highs in 2004, 70 percent of consumers believe that now is a good time to buy a home, according to the latest statistics from the NAR.
Misconceptions are often a common barrier to homeownership. According to NAR, 39 percent of non-homeowners believe that they need a 20 percent down-payment, and 87 percent believe they need to put at least 10 percent down. “First-time homebuyers are sometimes unaware of the options they will have for their down payment, and the down payment assistance programs available to them,” Ashley said. “TowneBank Mortgage provides FHA and conventional home loans for as little as 3.5 and 3 percent down, respectively. TowneBank Mortgage also works with several down payment assistance providers that can help low to moderate income households.”
Many younger Americans are also riddled by student loan debt, making homeownership harder to obtain. Although harder in some instances, it is possible. “In most scenarios that I come across, folks can still qualify for a comfortable mortgage even with student loans,” said Matt Sines, Loan Officer with FitzGerald Financial, a subsidiary of TowneBank Mortgage.
If you’re not sure if you qualify for a mortgage, contact a loan officer with TowneBank Mortgage to find out.
For more information on student loan debt and homeownership, check back for next week’s blog post featuring Loan Officer Matt Sines.
Ashley Knapp is a loan officer with TowneBank Mortgage in Virginia Beach. She can be reached at 757-793-4720 or via email at [email protected] (NMLS # 646087)
Matt Sines is a loan officer with FitzGerald Financial in Rockville, Maryland. He can be reached at 240-403-3428 or via email at [email protected] (NMLS # 706232)
The information contained herein (including but not limited to any description of TowneBank Mortgage, its affiliates and its lending programs and products, eligibility criteria, interest rates, fees and all other loan terms) is subject to change without notice. This is not a commitment to lend.