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The secret to personal wealth accumulation


The decision to buy your first home is an important one. Like other notable, first-time financial milestones – your first car, apartment or vacation – it’s often an exciting, nerve-racking process. For many, buying a first home is the most significant, memorable and personal financial investment a person can make.

Consider, for example, the magnitude of what you’re signing up for. In addition to committing your energy and finances toward a mortgage for an extensive amount of time, you’re also choosing a house that will help you grow, flourish, and feel safe. This place you purchase is where you’ll return every night to relax and rest your head; it’s where you’ll cook your meals, host your loved ones, learn new hobbies and tailor décor. Most importantly, the house you choose is a place that is yours to make and call home. Having this home stability provides your family with a sense of security, which in turn supports your overall economic stability and consistency.

This intentional decision of choosing a place to put down roots is an important, invaluable aspect of the homeowner experience. Immediately, benefits make themselves known. Perhaps you have more space than your previous place, or the newfound freedom to make changes to your property however you’d like; maybe you’re now part of a thriving neighborhood that has the close-knit sense of community you’ve always wanted.

Perhaps the most considerable benefit to purchasing your own home is the positive impact it has on personal finances. While it may seem counterintuitive with an initial down payment, other upfront costs and monthly household maintenance and utility costs, at the end of the day, owning a home actually builds your personal wealth.

According to recent findings from a 2019 U.S. Census Bureau report, a key contributor to wealth is home equity. Wealth inequality between homeowners and renters is striking. Overall, homeowners’ median net worth is 80 times larger than renters’ median net worth. It’s also believed that owning a house increases the likelihood of an individual to own other financial assets, such as vehicles, business interests, other real estate, and stock and bonds.

Why is this? There are many reasons. The top three most frequently cited reasons note that:

  • Homes appreciate in value. A home’s value tends to increase more quickly than inflation, usually yielding a positive return on investment.

  • Homes are enhanced by leverage. You are able to increase equity on the amount you originally paid upfront and what you borrowed as a loan.

  • Homes act as a forced savings method. Owning a home positively influence a person’s earnings and savings rates through their monthly mortgage payment.

Separately and together, each of these three factors are key to accumulating personal wealth.

It is understandable to feel that there are many barriers that exist in making homeownership a true reality for everyone. Limited savings and high debt, past unemployment, low or nonexistent credit scores, high interest rates, financial and housing discrimination, and even uncertainty about how to navigate the general process are all frequent detriments that either disincentivize or stop people from pursuing homeownership. However, there are many resources that can help you overcome these detriments, especially if you are a first-time homebuyer:

  • U.S. Department of Housing and Urban Development: This webpage includes a checklist of things to consider before buying a home.

  • Minnesota Homeownership Center: This nonprofit helps people navigate the process of buying a home. It includes in-person and virtual education opportunities led by experts across the homebuying spectrum.

  • Minnesota Housing: The state’s housing finance agency helps Minnesotans access safe, affordable housing, and provides resources on reducing your down payment.

  • Nonprofit Free Credit and Debt Advice: This nonprofit provides financial counseling services to people across the country.

  • Homestretch workshops: These workshops help you prepare for homeownership. Our team has conducted a number of these workshops where we walk first-time homebuyers through all the steps of purchasing a home from down payment assistance programs, financing options to homeowner’s insurance and real estate taxes. Attending one of these workshops will give you the tools and knowledge to be a confident homebuyer.

In addition to these resources, oftentimes the most helpful and immediate solution is to find a banker that you trust and are comfortable with to discuss your financial needs and aspirations. They will be able to connect you to a variety of resources that can support your individualized needs and get you on the right track toward meeting your goals.

A banker will also be able to address many misconceptions about the homebuying process. For instance, contrary to popular thought, homebuyers are not required to make a 20% down payment and do not need a pristine credit score to be approved for a mortgage. According to the National Association of Realtors, in 2018 the median down payment for first-time home buyers who financed was 7%, with a wide variety of credit scores at play.

Government programs like the Federal Housing Administration’s (FHA) Loan provide other options for prospective buyers concerned about the initial chunk of change, with down payment options sometimes as low as 3.5%. In addition to working with your trusted banker, these federal programs are often another great tool to leverage when upfront costs, lower credit, or uncertainty around your budget capacities are your main concern and barriers to homeownership.

Between 1999 and 2013, people who went from renting to owning enjoyed a median household wealth increase of $85,400, with those who owned their first home between ages 25-34 accruing the greatest housing wealth by their sixties. Even in the midst of a rocky economy and the housing crisis of 2008, a study conducted by Harvard found that time spent in homeownership positively affected an individual’s wealth. When it comes to accumulating and growing personal wealth, owning a home is one of the safest, most reliable ways to do so. And while your personal purchase may not earn returns right away, its increased value will be of no question a decade later.

Understanding the link between homeownership and wealth accumulation is incredibly important, as having access to safe and affordable housing is crucial to building equity. Whatever your personal vision of financial success and security looks like, I encourage you to consider homeownership as an option. With the right resources and advice, it may be more achievable than you think!