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Why It’s Smart to Buy Now: Is your money going towards rent instead of building equity?

Reason #2 - Equity vs rent

January 15, 2023

Is your money going towards rent instead of building equity?

Homeownership has always been a part of the American Dream, providing a roof over your head that is your own. But it’s also a great way to build wealth over time through the creation of equity. When you rent a house or apartment, you help someone else – namely, your landlord – pay their mortgage, and your landlord builds equity instead of you. Your monthly payment toward your landlord pays their mortgage, additional money to go towards repairs, and profit for your landlord. 

That means that you could potentially be paying a mortgage for less than you’re paying for rent each month!

What is home equity? In simple terms, home equity is the difference between how much a home is worth and how much is owed on the mortgage. If you spend 10 years paying $2,500 in rent, all of that money is gone forever. However, if you spend 10 years paying $2,500 toward your mortgage, you will get some of that money back when you sell your home.

How to build equity

  • Pay your mortgage. Each month, you make mortgage payments that will decrease the amount you owe on your home loan. The longer you pay on that mortgage, the more equity you build. And if your property value increases over time, that appreciation adds to the equity.
  • Appreciation. It is likely that the value of your property will increase from the time you originally purchased it. While property values can go up or down, the national average for home appreciation is 3 percent per year (according to Freddie Mac). 

Building equity through monthly principal payments and appreciation is a critical part of homeownership that can help you create financial stability.

Responsibilities of owning

One of the biggest upsides to owning vs renting is equity. You’ve made an investment that will benefit you in the long term. The downside to ownership is worrying about paying for repairs when something goes wrong. However, Ideal Homes & Neighborhoods provides a 2-year warranty that’s second to none. Ideal Homes is also the only builder in Oklahoma to guarantee your heating and cooling costs, offer a two-year warranty, and a 10-year industry-leading structural warranty. Ideal goes beyond energy efficiency standards, so your new home is also very affordable to heat and cool. Those warranties are like money in your pocket if something goes awry!

Your best option when deciding whether to rent or buy is to partner with a pro who can help you navigate your options. The Ideal Homes & Neighborhoods team can help you with your housing decisions and even run calculations to help you understand the total cost of home ownership. We can help you find out if purchasing is the right move for you and help you connect with a preferred lender to understand what you may qualify for when buying a home.

Sources:

Freddiemac.com

Ramseysolutions.com

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