How do you define wealth?
On paper, it’s the value of assets minus debts owed. On a more personal level, we know that wealth is what gives us access to things like owning a car or a secure retirement. It also provides funds to tap into in times of financial distress or for future investments. Amid all the changes in our society, one thing that has remained true is that the path to wealth accumulation in the United States still includes homeownership.
According to a study conducted by the Department of Housing and Urban Development (HUD), “Housing wealth accumulation depends critically on how soon a family that is renting becomes a homeowner, whether or not the family graduates to more highly valued owned units over time, or becomes a renter again and never regains homeownership.”
While all homeownership timelines are different, we know the sooner you make the transition into homeownership, the more wealth you can accumulate over time.
Homeownership enables you to do this in several ways:
1. Disciplined Savings
As a homeowner, you will need to be prepared for both the expected expenses, like property taxes, and the unexpected expenses, like a clogged toilet. To do so, you’ll want to maintain and grow an emergency fund. With a fixed monthly mortgage payment, you’ll also be protected from fluctuating rental payments, which will enable you to save at a steady rate. Some homes may have the potential for rental income, which can help build savings.
2. Build Equity Over Time
Monthly mortgage payments help build home equity. Equity is the current market value of a house minus what is owed on the home. Typically, the value of a home appreciates over the long term. The HUD report on wealth accumulation and homeownership for low-income households provides the following example of this: “If a family initially resides in a house valued at $75,000 and house prices were appreciating at a rate of 5% per year, the appreciation would be $3,750. Subsequently, if they were to move to another house valued at $100,000, and the appreciation rate stayed the same, the dollar amount of annual housing wealth accumulation achieved through appreciation would increase to $5,000.”
As the home increases in value, so does the amount of equity that is available to you. As a homeowner, you may be able to tap into a portion of your home’s equity. Bank of America defines a home equity line of credit, also known as a HELOC, as a line of credit secured by your home that gives you a revolving credit line for ten years to use for large expenses like remodeling, or to consolidate higher-interest rate debt on other loans, such as credit cards.
A HELOC has a variable rate, and often has a lower interest rate than some other common types of loans. The interest may be tax-deductible; you should consult your tax advisor about interest deductibility.
Her Agenda was able to speak with Kathy Cummings, SVP of Homeownership Solutions & Affordable Housing Programs at Bank of America. She shared, “Many people during the pandemic have been able to take advantage of the equity built up in their home to help them through financial hardship.”
3. Wealth Building For Generations
It’s no secret that there’s a racial wealth gap, but homeownership can help bridge that gap when Black and Hispanic families build their personal wealth through property ownership. Bank of America is helping families and communities across the country with its Community Homeownership Commitment, a program that helps low- and moderate-income homebuyers begin to build their personal wealth and legacy through the power of homeownership. Already, the initiative has helped 21,000 individuals and families purchase a home with an affordable loan and provided $180 million in grants for down payments and closing costs.
“Most of the generational wealth in any family is tied to homeownership, so when you decide to become a homeowner, that decision will have a positive impact on you and future generations in your family,” added Cummings.
Ready to start the journey towards building long-term wealth? Check out these resources that can help you prepare for homeownership. The Bank of America Real Estate Center® makes it even easier for prospective home buyers to identify grant-eligible properties, and the First-Time Homebuyer Online Edu-Series™ provides an easy-to-understand roadmap to buying and financing a home.
[Editor’s note: This article is sponsored by Bank of America.]
1 Qualified borrowers must meet eligibility requirements including, but not limited to, being owner occupants, meeting certain qualifying income limitations and purchasing a home within a certain geographical area. Minimum combined loan-to-value must be greater than or equal to 80%. The America’s Home Grant Program is a lender credit. Program funds can only be used for nonrecurring closing costs including title insurance, recording fees, and in certain situations, discount points may be used to lower the interest rate. The grant cannot be applied toward down payment, prepaid items or recurring costs, such as property taxes and insurance. Borrowers cannot receive program funds as cash back. Maximum income and loan amount limits apply. The home loan must fund with Bank of America. Bank of America may change or discontinue the America’s Home Grant Program or any portion of it without notice. Not available with all loan products, please ask for details.
2 Qualified borrowers must meet eligibility requirements such as being owner-occupants and purchasing a home within a certain geographical area. Maximum income and loan amount limits apply. Minimum combined loan-to-value must be greater than or equal to 80%. Program funds can be applied toward down payment only. Borrowers cannot receive program funds as cash back in excess of earnest money deposits. Down Payment Grant program may be considered taxable income, a 1099-MISC will be issued, consult with your tax advisor. May be combined with other offers. The home loan must fund with Bank of America. Down Payment Grant may only be applied once to an eligible mortgage/property, regardless of number of applicants. Bank of America may change or discontinue the Bank of America Down Payment Grant Program or any portion of it without notice. Not available with all loan products, please ask for details.
Bank of America, N.A., Member FDIC Equal Housing Lender ©2020 Bank of America Corporation. Credit and collateral are subject to approval. Terms and conditions apply. This is not a commitment to lend. Programs, rates, terms and conditions are subject to change without notice.