2016’s National Home Ownership Month is starting off on a positive note for homebuyers and homeowners. Housing affordability nationwide increased according to the National Association of Home Builders (NAHB)/ Wells Fargo Housing Opportunity Index (HOI) released in May. The report credited the affordability increase to a reduction in mortgage rates (the average mortgage rates edged lower from 4.09 percent to 4.05 percent) and favorable home prices. This meant that nearly two-thirds of homes sold between the beginning of January and end of March were affordable to families earning the U.S. median income of $65,700 - up from the 63.3 percent of homes sold that were affordable to median-income earners in the fourth quarter of 2015.
“This is the second consecutive quarter that we’ve seen a nationwide improvement in affordability due to favorable home prices and mortgage rates,” said NAHB Chief Economist Robert Dietz. “These factors, along with rising employment, a growing economy and pent-up demand, will provide a boost for home sales in the second half of 2016.”
Other positive signs on the homebuying front are that, in addition to today’s historically low interest rates helping homebuyers find affordable housing options, there are also newer options for purchasing a home without a 20 percent downpayment. For example, the Federal Housing Administration (FHA) offers loans to first-time homebuyers with downpayments as low as 3.5 percent (however, these loans require mortgage insurance). New homebuyers may find that some home builders have arranged favorable financing for their customers or offer financial incentives. In addition, today first-time homebuyers also can find help qualifying for a mortgage with low-downpayment programs offered by Fannie Mae (the Federal National Mortgage Association or FNMA)and Freddie Mac (the Federal Home Loan Mortgage Corporation or FHLMC)that are geared primarily toward the first-time home buyer market. These lenders now offer mortgages with 3 percent downpayments, allowing more creditworthy borrowers who lack the funds for a large downpayment to obtain a home mortgage.
Homebuyers and homeowners find unique tax benefits that apply only to housing to help lower the cost of homeownership. Both mortgage interest and property taxes are deductible. Moreover, for married couples, profits of up to $500,000 on the sale of a principal residence ($250,000 for single taxpayers) are excluded from tax on capital gains. Leveraging is another advantage of homeownership. A buyer can purchase a home and receive the full benefit of homeownership with a cash downpayment that is only a fraction of the total purchase price. This is called leveraging, and it makes the rate of return on a home purchase greater than on other purchases with the same value, such as stocks, where the buyer must put up the entire price.
This is all good news for homebuyers whether they are seeking a state-of-the-art new home, an existing home or a condominium home. As housing affordability continues to improve, more homebuyers are discovering the benefits of homeownership as a primary source of net worth and an important step in accumulating personal financial assets over the long term. In fact, the financial benefits of homeownership begin in the first year for most homeowners, through the ability to deduct mortgage interest and property taxes paid off of their taxable income. This can result in savings of thousands of dollars every year, especially in the early years of the mortgage when interest makes up the largest portion of the monthly payment.
In addition to the financial benefits to families, homeownership also strengthens communities and local economies and increases the property tax base that supports local schools and communities. Homeownership provides a solid foundation for family and personal achievement and improves the quality of life for millions of people.
Owning a home is for most Americans the biggest and best investment they will ever make. In addition to providing shelter for one’s family and possessions, homeownership is a primary source of net worth and an important step in accumulating personal financial assets over the long term. Today, according to NAHB, Americans have more than $10.8 trillion of equity in their homes, and for most families, home equity represents their largest share of net worth. So if you are considering starting on your path to the American Dream of Homeownership, now is a great time to get started.