The Real Truth About Rent vs Buying in Sacramento, CA
In the United States, there is somewhere around $13.1 trillion in total value of the equity held by over 75 million U.S. homeowners, according to the latest estimates from the Federal Reserve Board. And that works out to almost $175,000 per owning household. This is undeniable proof that homeownership is a crucial part of household wealth. In large part, because purchasers were able to put a good chunk of money down on a house, and to qualify for a mortgage. Paying for a mortgage actually helps produce more wealth, by freezing payment amounts and building equity through forced savings over the life of the loan.
A Mortgage is a Beautiful Thing
Having an option for a 30-year amortized, fixed-rate mortgage is a beautiful thing, providing an affordable route to purchasing a home while locking in today’s cost of that home for the life of the loan. The traditional rent versus buy argument compares the total monthly costs of buying a home with a mortgage with the corresponding rent. Although, that doesn’t take into account the equity that is built over time with a 15-year or 30-year Fixed Rate Mortgage. That simplistic look at the dollar for dollar expenditure on a monthly basis, hides the fact that a mortgage is unlike a rent check. It’s really comparing apples and oranges, as they say!
A percentage of every monthly mortgage payment, after the interest is paid, goes toward the owner’s home equity. And over time, less of the mortgage payments go toward interest and more go toward equity, so the savings power is enhanced over the life of the loan. Whereas, if you continued to pay rent over the same 30 years, you end up with no asset and no equity at the end. Even if the house only keeps pace with inflation over 30 years, which is a very conservative assumption, the forced savings built into a mortgage guarantees a homeowner is building wealth.
Building Equity in Your Sacramento Home
So it’s not just about the equalization of the monthly outlay of funds, it’s also the tax benefits, the principal paydown, and building equity. Just owning a home in the right neighborhood, that increases in value can build equity. Next, it’s what you can do with that equity… the smartest uses of equity are to put money back into your asset, your home, by keeping it maintained and upgraded, or to keep your debt at a low interest rate such as using it to pay for a kid’s college.
Now, that is the real truth about the power of homeownership over renting.
The Sacramento area, including Placer County, El Dorado County, and Yolo County is number 4 in the top Hottest Housing Markets in the nation, so now is a great time to buy or sell. So, check out the Home Buying University on the Resource Page to help you get started building wealth! Have a great week.