At 23, I was excited to start my first stable job with AT&T. To achieve financial stability, I moved into my first apartment. However, securing that apartment came with a substantial upfront cost. I had to pay a $1,800 deposit along with the first and last month's rent, which amounted to $3,400. Over the next four years, my monthly rent steadily increased from $760 to $900. When I crunched the numbers, I realized I had spent at least $36,000 renting.
Let's consider an alternative scenario. What if I purchased a home in 2013 using an FHA loan with a 3.5% down payment on a $100,000 house in Wayne County, MI, instead of renting? And let's assume that the estimated market value of that house in 2017 was $120,000. What would my financial situation look like then?
To estimate the gained equity, we'll need to break it down:
Initial Purchase Price: The house was $100,000 in 2013.
Down Payment: With a 3.5% down payment, I initially put down $3,500.
Mortgage Balance: The remaining balance on the mortgage after the down payment would be $96,500 ($100,000 - $3,500).
Market Value in 2017: Let's assume that the estimated market value of the house increased to $120,000 in 2017.
Remaining Mortgage Balance in 2017: To determine this, we need to factor in my specific mortgage terms and the monthly payments I made over the years.
For our calculations, let's assume a remaining mortgage balance of $70,000 in 2017.
Using these assumptions, here's how the equity calculation plays out:
Initial Equity: $3,500 (the down payment)
Market Value in 2017: $120,000
Remaining Mortgage Balance in 2017: $70,000
$3,500 + ($120,000 - $70,000) = $3,500 + $50,000 = $53,500
Based on these assumptions, I would have gained approximately $53,500 in equity on my $100,000 house in Wayne County, MI, from 2013 to 2017, had I chosen to purchase it with a 3.5% down payment. This is an estimate, and actual equity gains may vary depending on specific mortgage terms and market conditions during that time.
The key takeaway is that homeownership offers a unique opportunity to build equity over time. Instead of watching my rent payments vanish into thin air, I could have been investing in a property that provides financial stability and has the potential to appreciate in value. Moreover, homeownership offers versatility. I could sell the house, reinvest the equity into a new home, or even convert it into a rental property. When you own a home, you're in control of your financial future, and that's a powerful place to be.
Homeownership isn't just about the financial benefits, though they are substantial. It's also about community. When you own a home, you're not just a resident; you're a stakeholder in your neighborhood, more likely to put down roots, get involved, and make a lasting impact. Owning a home isn't just a financial decision; it's an investment in your future and your community.
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