Owning a home has great financial benefits. Because of this, more and more experts are growing concerned about the ramifications of a falling homeownership rate. Today, let’s look at the financial reasons why owning a home of your own has been a part of the American Dream for as long as America has existed.

The outcomes of a falling homeownership rate can be devastating. As explained by ApartmentList.com:

“Our research indicates that not owning a home has a sizable financial cost, as renters miss out on low mortgage rates and are hit by higher rents.

This phenomenon may exacerbate inequality in our society, as those wealthy enough to invest in real estate benefit from lower interest rates, whereas minorities and younger Americans, hit by rising rents and student debt, risk being locked out of homeownership.”

What proof exists that owning is financially better than renting?

1. A study published by the Joint Center of Housing Studies at Harvard University shows the financial benefits of homeownership. The study mentions five major financial benefits:

• Housing is typically the one leveraged investment available
• You’re paying for housing whether you own or rent
• Owning is usually a form of “forced savings”
• There are substantial tax benefits to owning
• Owning is a hedge against inflation

2. Studies have shown that homeowners have a net worth that is 45X greater than that of a renter.

3. Just last month, we explained that a family buying an average priced home this past January could build more than $46,000 in family wealth over the next five years. 

4. Some argue that renting eliminates the cost of taxes and home repairs. Every potential renter must realize that all the expenses the landlord incurs are baked into the rent payment already – along with a profit margin!!

Bottom Line

Owning a home has always been, and will always be better from a financial standpoint than renting.

In many markets across the country, the amount of buyers searching for their dream homes greatly outnumbers the amount of homes for sale. This has led to a competitive marketplace where buyers often need to stand out. One way to show you are serious about buying your dream home is to get pre-qualified or pre-approved for a mortgage before starting your search.

Even if you are in a market that is not as competitive, knowing your budget will give you the confidence of knowing if your dream home is within your reach.

Freddie Mac lays out the advantages of pre-approval in the My Home section of their website:

“It’s highly recommended that you work with your lender to get pre-approved before you begin house hunting. Pre-approval will tell you how much home you can afford and can help you move faster, and with greater confidence, in competitive markets.”

One of the many advantages of working with a local real estate professional is that many have relationships with lenders who will be able to help you with this process. Once you have selected a lender, you will need to fill out their loan application and provide them with important information regarding “your credit, debt, work history, down payment and residential history.”

Freddie Mac describes the 4 Cs that help determine the amount you will be qualified to borrow:

1. Capacity: Your current and future ability to make your payments
2. Capital or cash reserves: The money, savings and investments you have that can be sold quickly for cash
3. Collateral: The home, or type of home, that you would like to purchase
4. Credit: Your history of paying bills and other debts on time

Getting pre-approved is one of many steps that will show home sellers that you are serious about buying, and it often helps speed up the process once your offer has been accepted.

Bottom Line

Many potential home buyers overestimate the down payment and credit scores needed to qualify for a mortgage today. If you are ready and willing to buy, you may be pleasantly surprised at your ability to do so as well.