You Need Some Leverage

you need some leverageLeverage can give you an advantage whether you are lifting a heavy object or happen to be building up equity in a home. On a home, your loan-to-value mortgage allows you greater profits than just recovering your cash down payment.

You can purchase a $250,000 home with an FHA loan making a 3.5 percent down payment of $8,750. Assuming the home appreciates at 2 percent over the first year, after seven years your equity would grow to $75,920 when we factor in loan amortization and home appreciation. This investment gives you a remarkable 36.2 percent return rate.

Experts estimate that homeowners have 45 times higher net worth than renters. Obviously because they own a home. This puts them at a distinct advantage. The leverage of controlling a much larger asset with just a small down payment gives a homeowner a huge rate of return when compared to the initial down payment.

Another part of this equation is the forced savings that happens as a homeowner pays down their mortgage. With a portion of the monthly payment going toward the principle the loan will be fully paid at the end of a 30-year term. The amortization that happens in turn increases the owner’s equity in the home.

For buyers who can make a down payment and have good credit, buying a home can help to stabilize their finances. While you could research this on the internet, nothing beats getting a face-to-face meeting with a trusted professional with experience who can advise you about your situation.

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