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For most Americans, owning a home has long been considered a cornerstone to building and
preserving generational wealth. A home purchase often symbolizes more than just securing a place to live – homeownership can help anchor families, support long-term financial stability and fuel local economic growth.
If you currently own a home or if homeownership is one of your financial goals, it’s important to
understand how your home can be a foundational pillar in helping you build and maintain
generational wealth. A home can be an asset that appreciates over time as you build equity which
can serve as a financial resource for you and your family for decades to come.
Brandon Hilliard, a vice president and mortgage banking lending manager in DFW, shares more about the connection between homeownership and building generational wealth, and how you can make sure your home becomes, or remains, your most important financial asset.
Q: How does a home create generational wealth?
A: There are several perks to homeownership, many of which contribute to building wealth. Owning your home may be cheaper than renting in the long term if you have a mortgage with competitive rates; however, it’s important to keep in mind other home expenses, like insurance and taxes, when considering costs. Plus, since you own the home, that means you can build and tap into your equity for future expenses or profit when your home is sold.
Another way to think of homeownership as it relates to your financial picture is that it can influence your overall net worth. When you make monthly payments, you’re slowly owning more of your home and it can become an asset. On the other hand, if you rent, your monthly housing costs are just an expense for a place to live and you don’t own any of it when you leave. Put simply, owning a home may help you grow your money over time.
Q: Explain home equity and how building equity works.
A: The technical definition of home equity is the difference between the fair market value of your home and how much you still owe on your mortgage. Essentially, think of it as the part of your home’s value that you truly own. It’s made up of the amount you’ve already paid off, plus any increase in your home’s value. So, if you’re home’s value goes up, so does your equity and vice versa. Equity grows as you pay down your mortgage and, as I mentioned earlier, the market value of your home increases.
Q: How can this be beneficial financially?
A: There are a few ways. You can borrow against your home equity by taking out a loan, using your property as collateral to secure the loan. There are a variety of ways you can do this such as through a home equity loan, home equity line of credit (HELOC) or a cash-out refinance. You may use these funds to cover other expenses, like high-interest credit card debt, make home improvements, invest in another home or in an emergency. Home equity loans also tend to have more favorable terms than credit cards or other personal loans, potentially saving you money in the long run.
Q: What if you sell your home?
A: The more equity you have, the more you can profit from selling your home if you do so in the
future. For example, if you’ve paid off your entire mortgage before you sell, you may get to keep all potential profits. If you haven’t paid off your mortgage, any profits will pay off what you owe and you’ll keep the remaining funds– the more home equity you have, the greater your profit could be.
Q: What other benefits come from owning your home?
A. Homeownership offers the potential opportunity for tax deductions. The interest you pay on your mortgage, insurance premiums, property taxes and even improvements to your energy efficiency may provide an opportunity for tax deductions. You can consult with your tax advisor if you’re looking to understand how buying a home may impact your taxes.
There’s no place like home. Homeownership has long been a powerful tool for building generational wealth in communities across the U.S. and can help you secure a solid financial future for yourself and your family. Your home is more than just the place where you rest your head—it can be your greatest financial asset.
