Homeownership is one of the most important ways that Americans create financial security. Homeownership helps build assets, which are critical to financial well-being and quality of life. According to the U.S. Census Bureau, the median net worth of a homeowner is $199,600 compared to $2,200 for renters, barely one percent of the homeowner’s rate. Asset building can be particularly critical for women. The Asset Funders Network reports that single women own just 32 cents for each dollar owned by single white men. Single black and Latino women own just one cent on the dollar. Homewise is working to interrupt this cycle by helping women, particularly those of low-to-moderate income, to build assets through successful and sustainable homeownership. Each year single women and single mothers make up 30 percent of new Homewise homeowners; that’s nearly 200 New Mexico women buying a home of their own and building financial stability and wellbeing every year.
The Wealth Building Power of Homeownership
For most households, housing is the biggest monthly expense. Homeownership stabilizes that expense by locking in the principal and interest payment. Only a small portion of the payment, for taxes and insurance, can increase. With just two percent yearly inflation, a homeowner’s monthly payment would only be about $65 higher 10 years after buying their home. Meanwhile, a renter’s monthly payment would have increased by over $300 in that same time period. For homeowners, that’s hundreds of dollars every single month year after year that can be used to build savings, meet expenses, and invest in their businesses.
Homeownership also creates an automatic savings account by building equity. Each month, an increasing portion of a mortgage payment goes toward paying down principal. On a $250,000 mortgage, a homeowner would accumulate about $45,000 of equity in ten years simply from this principal pay-down. That doesn’t include any market appreciation, just the automatic savings effect of paying down a mortgage.
Appreciation can be difficult to predict but even with modest appreciation of only 2 percent per year, the owner of a $250,000 home would see over $50,000 in appreciation in ten years. Add that to the equity accumulated through the principal pay-down and the owner has about $100,000 of wealth to her name just by making her monthly housing payment.
Overcoming Financial Obstacles to Homeownership
Many low-to-moderate income women face financial obstacles that lock them out of the long-term economic benefits of homeownership. The challenges of excessive debt, poor credit, and lack of savings pose a risk to financial security and create barriers to achieving homeownership. Homewise helps to remove those obstacles through free financial literacy and homebuyer education to help people manage money, reduce debt, and build savings in order to build long-term financial wellbeing and support them on an affordable and sustainable path to successful homeownership.
The power of financial education as a tool for building financial resilience in preparation for successful homeownership can be seen in the results. In 2018, women who came to Homewise with financial obstacles and went on to successfully complete the steps in their financial action plan experienced an average 78 point increase in their credit score, a median decrease of $107 in their monthly debt, and a $3,100 increase in savings.
When clients complete the work to raise their financial profiles and become ready for homeownership, Homewise offers access to safe and affordable financing through the Homewise Mortgage. Assistance programs help low-to-moderate income homebuyers meet down payment requirements. And by eliminating the cost of mortgage insurance, buyers save an average of $150 in their monthly mortgage payments.
Conventional wisdom might say that these loans carry a higher risk, but Homewise loan performance proves that is not the case. As of September 30, 2018 Homewise loans past due were at 1.3 percent as compared with conventional loans at 3.58 percent and FHA loans at 9.37 percent.
Real Impact. Real Lives.
While the statistics are important measures, the best way to understand the real impact is through the stories of real women.
When Erika came to the United States from Mexico she had one goal: to make a better life for herself and her children. In the United States, Erika began working as a waitress at a popular local restaurant and did everything she could to make ends meet. Money was tight and extra time was in short supply, but she was determined to take care of herself and her children on her own. She was living in a mobile home, which she and her family had quickly outgrown, and wanted to buy a larger home of her own. But with her income and expenses, she thought that goal might be out of her reach.
Erika had some big financial obstacles to tackle. Her income was largely based on tips and fluctuated from month to month. She had credit challenges and collections, and very little savings. With the help and guidance of her Homewise Home Purchase Advisor, she was able to get her finances on track. They started by working on cleaning up her collections to improve her credit. She was even able to successfully remove some collection claims that did not actually belong to her. Then it was on to savings. Soon she was making bi-weekly deposits into her savings account. In just six months Erika’s collections had either been paid off or removed from her credit report, and her credit score drastically improved. She then worked with her Homewise Realtor and found an affordable four bedroom new construction home. While her home was under construction, Erika sold her mobile home and a second vehicle to increase her savings and have even more money to put toward the purchase and furnishing of her new home.
Less than a year after making her first call to Homewise, Erika closed on her new home. The kids eagerly share their favorite things about having a new home, “having a room of my own!” and “having a trampoline in the backyard!” For Erika, the best part is having a safe, quiet and comfortable place to raise her family, and space for her Mom to come visit often from Mexico. When asked what it feels like to be in her home, Erika responds happily, “It’s exactly how I imagined it would be. It is a great blessing for me and my children.”
A home of your own is more than the wood, tile and stucco that go into it. It’s a place to raise a family, be a part of a community, and build wealth. Homewise helps women and their families overcome obstacles to home purchase and make smart financial decisions both during and after home purchase to create financial security and build assets, which are critical to financial well-being and quality of life.
Homewise, Inc. is a nonprofit Community Development Financial Institution (CDFI) that works throughout New Mexico to help create successful homeowners and strengthen neighborhoods. Homewise offers financial education and coaching, real estate services, affordable mortgage lending and down payment assistance, refinance and home improvement lending, real estate development and disinvested property rehabilitation. Since our founding in 1986, over 16,000 households have attended our financial workshops. During that time over 5,000 people have purchased homes, over 2,200 have made energy efficient home improvements, more than 700 have refinanced their mortgages. Homewise has also built over 750 high quality, affordable homes. You can learn more about how to support our work at- https://www.homewise.org
Article by Laura Altomare, who serves as the Chief Communications Officer at Homewise. As the CCO, Laura leads the organization’s strategic communication and capital raising strategies. She earned a B.A. in English Literature from Colorado State University and holds a Certificate in Fund Raising Management (CFRM) from the Indiana University Lilly Family School of Philanthropy. She also holds certifications from the Soul of Money “Fundraising from the Heart” Institute and the NeighborWorks America Training Institute.