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Dictionary.com defines the American Dream as:
1. the ideals of freedom, equality, and opportunity traditionally held to be available to every American.
2. life of personal happiness and material comfort as traditionally sought by individuals in the U.S.
The American dream means many different things to many different people. However, for most, one of the key parts of determining success in achieving the American dream is owning your own home. After the Great Recession, many wondered if home ownership was still a great investment. The answer is a resounding yes! The economy has bounced back around the country. According to the latest studies, in most places around the country, home prices have bounced back to the point of where they would have been had the recession never happened.
A Great Time to Build
There are several conditions that are making it a great time to build your new home today. Flexibility is coming back to the mortgage market, interest rates are still hovering near historic lows, and the growth of modular construction is helping to lessen the impacts of the skilled labor shortage in the construction industry.
Mortgage Flexibility: The mortgage industry has increased options for down payments. Gone are the post-recession days when your only option for building a home was with 20% down. FHA has reintroduced 3.5% down payment options. Some banks offer portfolio loans with 10% down. Across the country, average credit scores have improved unlocking many good mortgage options for today’s home buyer.
Interest Rates: Interest rates for a 30 year mortgages are still hovering near the historic lows we experienced a few years ago. A 30 year $250,000 loan at 4% interest has a payment of $1,193. That same loan at a 5% rate equals a payment of $1,342. That extra 1% of interest rates adds an additional $150/month to your payment for 30 years! Rates are volatile. Just because you see that 3.84% rate today doesn’t mean it will be here tomorrow.
Building Your Home: Building a home versus buying a used/existing home has many advantages. Newer homes are more energy efficient. Savings on the energy bill with a new, better insulated and more tightly built home can save you hundreds of dollars per month in energy bills (electric, gas, oil).
You also get to pick your own floor plan taking advantage of today’s more open layouts. Building material options provide for lower maintenance and easier to clean options. And don’t forget amenities such as laundry and kitchen appliances that make your life better but not generally found in older homes. Best of all, you can choose your own colors!
The Benefits of Home Ownership
There are generally 3 main benefits to home ownership.
Tax Benefits – There are unique tax benefits that only apply to those that own their own home. These benefits help lower the cost of homeownership. Mortgage interest and property taxes are both deductible for Federal income tax purposes. In addition, if you have a profit when you sell your home, a married couples that has a profit of up to $500,000 on the sale of their principal residence can exclude it from capital gains tax.
Appreciation – We have put the recession behind us and most property around the country has recovered in pricing making appreciation part of the home ownership conversation again. Appreciation matters because it can make the decision to purchase a home even more attractive. Even small changes in the appreciation rate can change the long-term value of buying a home considerably. For example, a $235k home becomes worth $485k at 3% appreciation after 30 years, but it becomes worth an amazing $649k at a 4% appreciation rate.
Built in Savings Account – For most Americans, homeownership is a primary source of net worth and an important step in accumulating personal financial assets over the long term. The economic recovery is almost complete. In 2016 the total net housing wealth for all owner-occupied units was $11.03 trillion. For most families, home equity represents the largest share of their net worth.
The Psychological Side
Forget the financial aspects of home ownership. Home ownership is good for a person. It promotes stability, security, and stronger social ties with the community. Buying a home is a big step in settling down and putting down roots. Researchers find that not only do homeowners gain a sense of stability when they settle into their first home, but they also contribute to neighborhood stability.
Privacy is another aspect of home ownership that is often forgotten. Do you really enjoy listening to what your neighbor is watching on TV? Approximately 35% of rentals are single-family units in the U.S., that means that 60% of rental properties are 2 or more units, which includes duplexes, apartments, or condos. In a survey conducted by Freddie Mac, 86% of renters agreed that owning a home would give them more privacy than they currently have. The privacy that homeownership can offer is priceless.
No Place Like Home
Homeownership has always been considered the gateway to the middle class and a benchmark of the American Dream. Today is the time to take advantage of the opportunity to build a new home. Interest rates are still great by historical standards and the psychological advantages aren’t bad either! Its time to make your plans to build your new home.
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