b&b126 Why homeownership as a Person of Color is more than an investment, it’s how to build a legacy
In Part 3 of our coverage at CFED’s Assets Learning Conference 2016, we explore one of the quickest ways to close the racial wealth gap – increased homeownership for People of Color.
Funny story, we almost did a show on race and homeownership right before we found out about the Assets Learning Conference and as soon as we saw the titles of their sessions (one literally called “Race & Homeownership”), we knew that 1. we had found our people, and 2. we had so much more to learn.
It’s been proven that homeownership is the #1 way to build wealth. Just to give you an idea of hard numbers: the median net worth of homeowners is $195,000, compared to $5,400 for renters. It’s a bigass difference.
If we eliminated the homeownership gap, it would actually close the Black and white wealth gap by 47%, and the Latinx and white wealth gap by 69%.
There’s a lot of ways that homeownership builds wealth. There’s different components, they all are maybes, let’s put it that way. So one thing is there’s inflation protection by locking in a mortgage payment, right? So your rent doesn’t go up every year, essentially. So, usually your rent goes up, but your mortgage payment stays the same. You’re paying the same amount of money for 30 years, or however long you got the mortgage for, and that’s that. Now, that is very true. On the other side of it, you are paying insurance and property tax, and those are two things that do go up every year potentially. Sometimes it goes down, sometimes it goes up, but it is something to take into consideration. The other wealth building potential is that it creates an automatic savings. So, what they mean by that is: you put money into a mortgage, you pay down a mortgage, and you are putting equity into your home. Now, at the very beginning of your home loan, a home loan is amortized over 30 years, which means that at the beginning of your loan time you’re paying much more interest, almost all interest at the very beginning versus paying down principle, and as you get closer and closer to the 30 years, more of the mortgage payment goes toward the principle or the equity than to the interest.
The other way a home builds wealth is to provide leverage appreciation…You know, putting $50k into something, and you suddenly own something that’s worth $800k…That’s huge.
‘Cause the reality is, you’ve spent so much time saving up for the down payment, and then you buy the home and you’re like “Oh my god, I don’t have to save up money anymore!” but I usually recommend that people continue to save at least a similar amount to go towards maintenance costs for the home…You will one day, in the middle of nowhere, out of nowhere need to drop a couple thousand dollars to fix something crazy in your house. That’s just gonna happen. You don’t know when, but you do know it’s gonna happen, and so you do still have to maintain that savings habit
Wiping out the debt does not change your debt spending habit. If you are trying to pay down your debt, kinda any debt, just for peace of mind, and not changing the habit that created that debt, then you ain’t doin’ nuttin.
If you’re talking to a mortgage lender or a broker and you’re trying to stretch it, they will stop and tell you “We have these regulations in place because we don’t want you to be overextended.” Any good one will tell you that.
I know that in America being a person of color means that you end up having a number of responsibilities that you wouldn’t otherwise have, but yo that’s your whole life.
[Homeownership] is not the only way to build generational wealth. It is the most stable way. And the most accessible way for middle income families. And one of the ways that is more supported than a lot of other ways. So, I don’t want to say the word safer but it’s a little bit safer. But it requires you to stay here.
If you are a veteran, if you’ve served in the military, you can actually purchase a home for 0% down, and you won’t owe any private mortgage insurance