Look around and think…
How many people you personally or indirectly know who have bought home paying 100% cash.
Probably no one…
Do you know anyone who has even paid 50% downpayment to buy a home ownership?
Historically, Government of US and Canada have been supportive of home ownership because of its contributory nature towards the economy. It’s not difficult to understand how home ownership of individual family brings economic benefits to the society. Mass construction of homes creates jobs. Home ownership generates revenue afterwards which would be used to maintain and build further infrastructure.
Depending on your individual credentials, you are able to buy a home with as little as 5% to 10% down payment in both US and Canada. This is a huge advantage for an average Joe considering both the countries were built upon immigration since last many decades. Average house price in the US is $322K(4 bedrooms/ as per Zillow as of Oct2017) and in Canada is 496K (Canadian Real Estate Association website as of July 2017). If the option of buying a home with as little as 5-10% down payment is not available, Homeownership may remain a dream for a vast chunk of the population in both the countries.
How can you use support from Government for your own benefit?
Once you become a homeowner, you keep paying your mortgage till fully paid up. The mortgage amount keeps decreasing as you pay your monthly instalment and the value of your home increases. History suggests in 8-9 instances out of 10, the value of your home will increase! This, in turn, increases the net worth of the homeowner. There are many intangible benefits which come with the increase in value.
Whether you live in your house or you rent it out, this is a great factor to be used for your own benefit. The most lender would allow you to buy your own home for 5% down payment. In the case of owner-occupied investment property, down payment will be 10%. And 2-3 unit investment property at 20% down payment. So take the thing in perspective, If you want to buy your own home for $400K, you would require a down payment of $20000 apart from other miscellaneous expenses. Isn’t it a great advantage? I think it sure does!
Hypothetical example :
The important numbers from above information***:
- Every month by month Owner would need $2553 instead of $4253 to maintain the operation apart from his own responsibility as a homeowner.
- The owner would accumulate Equity close to 100K while living and renting out the 2 additional units.
- At the rate of 4%, the property appreciation will be approximately $140K.
Hypothetically if the owner sells the property at the end of 5 years, the total sale proceeds would be $840000.00.
The gain includes your initial investment of $69K, your equity accumulation of $87K and the appreciation of $140K. All the 3 component of the gain are a good result of your hard work. However, from landlord’s perspective, it can be a huge advantage as they are coming to you as a total amount of $228K for your future endeavour. You would have so many different ideas and confidence at that stage to utilize this amount for the maximum gain.
Note: Several other factors like a personal credential, mortgage loan insurance, tax implications to calculate actual income are not considered for the purpose of explanation.
Conclusion: It’s a huge deal that you can buy your home with the downpayment as low as 5%-10% of the total price.
Learn to use this to your own advantage to create more wealth!
Your own home can be a great wealth building tool if you understand the concept and use it smartly.