How Owning a Home Affects Your Net Worth

Most people think only the rich and famous have a net worth. The reality is, everyone has a net worth, regardless of their economic standing. It’s important you know your net worth as it’s a powerful tool in helping you understand your financial situation.

When you’re in the market for a new home, figuring out how owning property factors into your net worth helps you find homes that fit into your budget. While there aren’t any hard and fast rules for how much of your net worth should go toward home ownership, a good rule of thumb is about 20-30 percent.

How to Figure Your Net Worth

For many people, owning a home is one of the quickest, most effective ways to increase one’s net worth. This is especially true when you don’t have stocks or any other investments.

Figuring net worth is straightforward. It is the sum of all your assets minus your total debt. Assets include things like stocks, bonds, cash, savings, retirement accounts, annuities, property, valuables, etc. Debt includes loans, mortgages, credit cards, etc. Again, the average property ownership falls between 20 and 30 percent of one’s net worth for most people.

When purchasing a new home, it’s a good idea to put at least 10 percent down on the property. Making sure that your housing expenses don’t exceed 29 percent of your gross income is also a good starting point, although you do have some wiggle room on this if you don’t have a lot of debt.

Good to Know

In the United States, home ownership has dwindled to an all-time low since 1965 thanks to stagnant wages and rising real estate prices. Although it is more difficult for Millennials and middle-class citizens to own property, stocks and real estate continue to drive American wealth.

Despite the idea that only rich people have a net worth, everyone has one. If you’re in the market for a new home, it’s good to know yours so you can set a responsible budget when house hunting.