Home Equity And Net Worth: A Quick Overview For First Time Buyers

Home Equity Explained For First Time Home BuyersIn case you haven’t heard, home owners have a shockingly higher net worth over renters, and that gap only continues to get bigger as home values increase. But what’s even more surprising to those who haven’t yet taken the deep dive into home ownership is that this is still the case even as most “home owners” don’t actually own their home outright.

It’s safe to say that the majority of home buyers don’t have the means to pay cash for a home, and that’s especially true for first time home buyers. But taking out a mortgage doesn’t mean you can’t significantly boost your overall net worth, even if you only put down a minimal amount.

As each monthly mortgage payment is made, home owners continue to build more and more equity, which is essentially the difference between what your home or condo is worth and what you still own on it before the home loan is fully paid off. But just what does this mean for you as a soon-to-be home buyer and how can it help you down the road?

More Equity, More Options When It’s Time to Upgrade

The number one advantage to having equity in your home is that you’ll be able to use that money to help fund another purchase if or when it’s time to upgrade. This also means you might be able to borrow less, ultimately keeping your monthly payment similar despite buying a home with more living space or in a better location.

More Equity Presents Other Financial Opportunities

The other primary advantage to being a home owner with equity is that if you ever need a cash infusion, you’ll be able to borrow against the equity in your home with what’s commonly referred to as a home equity loan. And unlike credit cards or other forms of financing, home equity loans typically have significantly lower rates, and interest on a home equity loan can also be tax deductible.

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