of the greatest financial aspects of buying a home
is the ability to leverage your money. Simply put,
leverage allows you to use a small down payment and
financing to purchase a larger investment. For example,
if you bought a $125,000 home with 10 percent down,
you leveraged the $12,500 down payment to purchase
an asset worth 10 times that amount!
The benefits of leverage really become apparent with
appreciation, or the rise in value of a property.
Using the above example, say you were to live in the
house for 5 years, and during that time property values
in your area were to rise an average of 2.5 percent
a year. Your home would then be worth over $141,000.
By putting only 10 percent down, you get to enjoy
the appreciation for the full amount!
In addition to the 10 percent down, you'll also have
to make mortgage payments. But with each payment,
a certain amount of money is being used to pay down
the principal balance that you owe. This is called
building equity. So in the event you sell your house,
not only can you realize a profit from your leveraged
money, you also have a chance to pay yourself back
for the money you've put in over the years. No wonder
so many people consider a home an excellent investment!