Appreciation Rate for Houses: How Does It Work?

Much like a good wine gets more valuable with age, most property does too. Much of the appreciation that a property sees is due to the location more than the physical building, the house itself does matter. Let’s take a closer look at what the appreciation rate for houses is and how it works.

What Is Home Appreciation?

Home appreciation refers to the value of property increasing over time. When purchasing a home, finding a house that will appreciate in value is the goal, as ROI from property appreciation is how wealth is built in real estate. As equity builds, appreciation adds to the value of your investment.

What Is the Average Appreciation for Houses?

Historically, the average rate for home appreciation is between 3 and 5% annually. However, this rate can be markedly different from the national average in certain metro areas, dependent upon economic influences. Local economic factors can sometimes affect the appreciation numbers in neighboring communities and also impact the national average as a whole. Appreciation can also be affected by lending interest rates and the increased demand for housing.

Is There a Difference Between Appreciation and Inflation?

Appreciation and inflation are two entirely different concepts. Appreciation refers to the increase in the value of a personal asset (especially property), while inflation refers to an increase in the price and cost of goods or services and is not tied to inherent value. In terms of personal finance, increasing appreciation is considered good; inflation is generally not.

How Does Appreciation Affect Purchases and Sales?

For the homeowner, appreciation is a positive metric driving the sale of their home. If they have built equity, they will see a substantial ROI when selling their house. For a homebuyer, appreciation is a mixed bag—they will have to pay a higher price for house, but if the neighborhood and community are part of an appreciating area, they can also expect to see their investment grow after purchase.

Calculating Home Appreciation

There is a basic formula for calculation home appreciation: A= P x〖(1+R/100)〗^n. In this formula, A represents the value of the house after n years, P is the purchase amount, R is the annual percentage rate for appreciation, and n is the number of years after purchase. You can plug in the numbers and solve for A. However, a simpler solution is to find an appreciation calculator online and input the values--there are several to choose from.

How Do You Keep Appreciation Rate for Houses High?

To protect your investment, it is important to keep appreciation values high on your property. Barring catastrophic economic events, it is possible to have a solid level of control over the numbers if you invest wisely. Keep the following in mind when purchasing a home, and appreciating values should follow.

Maintain the Property

After the initial research into buying a home, the most important way you can assure appreciation of your investment is to keep your house and surrounding property well-maintained. Priority must be given to preserving the home’s structural integrity by scheduling regular service checks for plumbing, HVAC, and pest control. Lawn care, landscaping, and cosmetic appearance (fresh paint, weatherproofing, improvements) are also important. Even in the best of neighborhoods, a ramshackle house will not sell for close to its inherent value.

The Neighborhood Matters

When purchasing a home, location is the most important factor to consider. The value of a property is what appreciates, not so much the structure itself. While maintaining your house is an important way to ensure that it doesn’t depreciate sharply and take away from the property’s overall appreciation, the location is the metric that drives appreciation. Don’t neglect to research the neighborhood itself, as well as the surrounding communities. Keep in mind that homes near good schools tend to do well, as do homes in up and coming neighborhoods or near areas scheduled for major development (for example, a new planned community or town center). A general rule is to look for places that are near thriving communities where people want to be.

Don’t Overvalue

Don’t offer more than market value. Market value is the figure that the fully informed buyer would pay for a home, based on what has been paid for similar homes in the surrounding area. These are called “comparables.” A real estate agent will have an excellent grasp of comparables in the area, as well as a good idea of the location desirability, and can steer your offer accordingly. Overvaluing a house is a mistake, be sure to have the home appraised. By paying too much, you can find yourself underwater on your investment, especially if the housing market is volatile.

Buying a home is an investment in your future and when you invest in a property that will appreciate over time and give you a return on your money, you are investing wisely. For help with the home buying process, including experts in home appreciation, contact Hero Home Programs™. They partner with local experts who can help you make the right choices in your home buying journey.

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House Renting vs. Buying: Pros and Cons

It’s the age-old question -- should I rent a house or buy a house? The reality is, there is no right or wrong answer. Individual circumstances will play a factor, as will economic conditions. There are both pros and cons to renting or buying, so weighing your choices carefully becomes a priority.

Pros of Renting a House

There are some circumstances where it just makes sense to rent a home versus buying one. Those who live in high-cost areas or have careers that force them to relocate frequently are some of those who may benefit from renting. Let’s take a closer look at the pros and cons of renting a house.

Cheaper in some areas

In some areas, especially in certain major cities, the question of renting vs buying comes down to the cost of the location. For many major cities, renting is the cheaper option. Cities that top the list as some of the most expensive cities to live in are located in the western half of the country. Chicago, Portland, and L.A., with the largest gap in the country seen in San Francisco, are all places where it is cheaper to rent than it is to buy. According to Forbes, a buyer would have to spend 79.68% of the median income on housing payments, while a renter would spend only 35.66%.

Cheaper in certain situations

When purchasing a home, an important consideration is that an owner will not see an ROI for approximately five years after purchase. If you plan on moving within a few years, you could lose money simply paying down mortgage interest without gaining equity in the home. This would be in addition to added expenses such as property tax, purchasing fees, and home repairs. If moving too soon, these expenses would be a dead loss to the buyer.

Flexibility

One of the most significant benefits of rental is the flexibility it offers. Those who frequently move for work or their lifestyle may not want to be bogged down with the extra expenses and difficulty of homeownership when going from place to place, especially if they won’t have time to build equity (remember the 5-year rule).

Fixed expenses with no surprise fees

Unlike owning a home, the maintenance of a rental is not the renter’s responsibility. Home upkeep can be a prohibitive expense and is a minefield of surprise repairs and structural emergencies. Monthly budgeting is simpler and more consistent when not having to factor in maintenance fees or extra taxes.

Cons of Renting a House

Every pro list needs a con lineup to compare it to, so that’s just what we did for you. Let’s take a look at a few cons to renting a house.

Rent is an expense

Rent is a pure expense, not an investment. When paying a mortgage, you pay into the property, which gradually builds equity. Equity is the amount that is owned free and clear and will increase over 15 to 30 years until the home is owned outright. Rent pays for the privilege of living in a house on a monthly basis, and nothing more.

Rent can increase

While a rental price may look good at the onset, remember that rent can increase at the whim of the property owner. A mortgage remains steady, with the added benefit of improving your credit score if paid promptly.

No tax benefits

Renting a house does not offer tax benefits. Interest on a mortgage can be claimed as an expense in the yearly tax file, reducing your overall tax bill.

Cannot customize property

An important consideration when deciding between home rental and ownership is the ability to customize. A renter is not free to change any aspect of the property without express permission from the property owner. This includes the choice of paint color, plantings, or any structural changes. For those who want their home to reflect their own stylistic choices, homeownership may be a better choice.

Pros and Cons of Owning a House

Owning a home is both a commitment and an investment. It’s difficult to give a quick answer to the complex question of “Should I buy a house or rent?” A better choice is to analyze the major factors of homeownership and ultimately decide if renting or buying a house is best for your personal income and lifestyle.

The need for mobility in a chosen career

An important element to factor into the rent versus buy equation is your career path. Is it likely that you’ll be staying in one area for a long time? Is your company based in one city, or is it a possibility that you might be moved to another office? Is employment steady in your field? If there are many questions surrounding your ability to stay rooted in one place for a period of time, a rental might be a better option. You need time to build equity and allow for a move, which is not always a quick and easy process.

A personal need to settle down or to be able to move freely

In that same vein, those who are not ready to settle into a specific place for long may not be the best candidate for homeownership. If moving about freely is a must, rental is a more practical solution. A mobile lifestyle is not the best match for homeownership, which requires stability. Remember that there is no ROI on owning a home for approximately five years after purchase, so frequent moves are not financially savvy with a home purchase.

Long-term economic development in the area

Before committing to homeownership, be sure to take a look at long-term trends in economic development for your area. Whether your home will appreciate or depreciate in value depends directly on the property it sits. Careful research is necessary to avoid financial mishaps. If you are unsure of a particular area, renting is the safest option.

Owning a home is considered the ultimate American dream, but sometimes it just makes sense to wait and continue renting. If you have been renting and you’re ready to stop paying someone else’s mortgage, reach out to a Hero Home Programs representative. Their experienced home buying experts will help you find the perfect realtor and lender for your needs. They can also help you find grants in your area and special housing partners. Their goal is to save you as much money as possible while helping you achieve your dream of homeownership.

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Pros and Cons of Buying a House

Buying a home is not only a dream for most Americans but also a solid investment. Homeownership is the most accessible avenue for building wealth in this country. Many potential buyers often ask, is it worth it? What are the perks of buying a house? What about the cons? There are many considerations to examine before taking the plunge into buying a home and taking a good look at the breakdown of the pros and cons of buying a house to help you make an informed decision.

Pros of Buying a House

There are many pros to buying a house. Besides it being a long-term investment, it is an ideal way to build wealth and leave an inheritance for future generations. Let’s take a closer look at the other advantages:

Long-term investment

Buying a home is an important long-term investment. Keep in mind, when referencing appreciation in a property, this appreciation applies to the land itself. Regardless of whether it is a house, townhome, condo, etc., the structure always depreciates. The best way to increase property value is to do your research on location. Choose a solid neighborhood in an upwardly mobile area surrounded by thriving businesses or schools. Home upkeep is important, but the location is the most vital metric.

Building Home Equity

Equity is the homeowner’s unencumbered interest in their property, or the amount that the homeowner owns free and clear. As the mortgage is paid down, home equity increases. The more home equity you have, the higher your assets and the more liquid cash you can acquire.

Tax Benefits

As a homeowner, you may be able to deduct interest payments as an itemized deduction on your annual tax file. This means less money to Uncle Sam and more money in your pocket.

Steady Finances

A fixed monthly mortgage offers a steady expectation for monthly expenses. Unlike rent, which can fluctuate and be raised with little notice, the mortgage remains the same month after month. Having an awareness of housing costs in the long term can help in long term financial planning.

Your Credit

Timely mortgage payments are an excellent way to improve your credit score. A good credit score will help you not only should the need for an unexpected expense arise but also if you’d like to refinance your home for a better mortgage rate down the road.

Cons of Buying a House

Just as there are pros to buying a home, there are cons too. The cost of maintaining a home and depreciation are just two of these cons. Let’s take a closer look.

High Upfront Costs

Buying a house is a big investment—and it’s not only about the price tag of the house. A home purchase accrues additional expenses that are often not anticipated. These include property taxes, lawyers, appraisal fees, and home inspection. Not to mention any repairs that may not have been negotiated in the purchase contract. Maintenance and repairs will be an ongoing expense. Be prepared to stay in your new home for at least five years. It takes this long for you to begin to see a return on your investment after the initial purchase. The majority of your mortgage payment for the first few years will essentially be paying down the interest. After this time period, you’ll start to build equity, which is the amount of the home that you own free and clear.

Make sure that you’re financially prepared for buying a home. Buying a home is generally more expensive each month than renting, especially when factoring in property taxes and things like maintenance and repairs. If not financially prepared, the negative impact on the monthly budget can be tremendous. But the rewards are just as tremendous if you are prepared.

Maintenance and Repairs

Homeownership allocates responsibility for all maintenance and repairs of the home and property. Even with regular maintenance, major repairs can catch a homeowner off guard. Setting aside a fund for home repair emergencies and upkeep is wise.

Depreciation

There is always the possibility of property depreciation, even with careful location planning. Some communities may become depressed through a major mishap or changes in outlying areas. If a homeowner is unable to afford the upkeep on a house, the structure itself can suffer sharp depreciation (more so than is typical in an equivalent structure), due to damage.

Illiquidity

Illiquidity is when your assets are not easily converted to cash without taking a substantial loss. While it is considered an asset, it cannot be quickly sold for cash and sell for a profit at all. Purchasing a home is a long-term investment.

Harder to Move

For those who move from place to place because of work or lifestyle, keep in mind that moving becomes more difficult when you own a home. The house must be staged and put on the market, a buyer found, closing paperwork prepared, as well as a new home procured. This can take several months, not to mention the stress and frustrations that come with it. If multiple moves are essential, renting may be the better option until you are more stable.

Weigh The Pros and Cons of Buying a Home

In the end, the decision to buy a house is more than just the breakdown of pros and cons. Owning versus renting is a question of means, opportunity, and ultimately, personal preference. There are homeowners who are happy with their choice, even while in straightened circumstances otherwise. Likewise, there are people who can well afford a house that enjoys the life of a renter. Careful consideration of means and preference is necessary to decide if homeownership is right for you.

When the time is right and you’re ready to buy, reach out to a Hero Home Program representative. They work with homeowners to line up the best financing options and maximize savings on home-buying costs.

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Buying a New House Checklist

Buying a house is an essential step in building wealth and financial stability. But it’s more than just picking out the home and signing a piece of paper—there’s a whole process to be followed with crucial steps along the way. This handy buying a new house checklist will help you to chart the entire course -- from eligibility checks to receiving the keys to your new home.

Checklist When Buying a New Home

Credit score

Your credit score is a vital metric in determining eligibility for home loans. Lenders look at this number to decide whether you are a good financial risk. A minimum score of 620 is required for a conventional loan, though some lenders may require a higher number, especially post-Covid.

A low credit score can prevent you from buying a home or refinancing your existing property. However, there are ways that you can improve a poor score. First, be sure to pay all of your bills on time. Late bills can show up on credit reports for seven years, but their impact on your score will decline over time. Next, pay down your debt. Last, do not open any extra lines of credit unless absolutely necessary.

Finances and Budget

Create a budget to get a picture of what you can truly afford to spend on a house. Analyze your DTI (debt-to-income ratio). This number will help determine your ability to get a home loan as high DTI’s are a red flag for lenders. Typically lenders want to see a DTI of less than 50%.

DTI= income/debt payments x 100. Calculate what you spend on debt per month, for example on rent, credit card payments, car loans, student loans, etc. Then calculate your gross income. This includes gross income from a W2, bonuses or overtime, and any other income sources. Divide your gross income by your monthly debt payments, then multiply by 100. This is your debt-to-income ratio.

Remember to carefully consider ALL expenses when calculating your budget. Taxes, insurances, any travel or commuting expenses, and a fund for emergency repairs are often overlooked.

Down Payment

To determine how much down payment you need, you need to know the required percentage for your lender. For instance, an FHA loan requires a 3.5% down payment. To calculate, multiply this number by the price of the home. (For example, if the house costs $150,000: 150,000 X .035=5,250. Your down payment is, therefore, $5,250.) If possible, save more than the minimum amount.

Having a sizable down payment for a new house is beneficial in two important ways. First, it gives you an advantage over competing homebuyers. It also whittles down monthly mortgage payments, lightening the burden on monthly expenses.

Documents

Be prepared! You want to be ready to spring when you see your dream house, so have all the necessary documents gathered and at-hand. Some of these documents include:

• Tax returns
• Proof of income
• Bank statements
• ID
• Letter of recommendation from the landlord if you’re a previous renter
• Proof of funds for the down payment

Mortgage Options and Mortgage Pre-Approval For Buying a Home

Most realtors will request a preapproval letter before starting a house hunt with you. This preapproval tells your realtor (and the seller!) that you can afford the home you are trying to buy.

Do your research! There are different types of mortgages, and it’s important to find out which is best for you.

To become pre-approved for a home loan, do the following:

• Get your credit score in line (remember, 620 is the minimum acceptable number for conventional loans)
• Have financial documents gathered to show mortgage broker (i.e proof of assets, proof of income)
• Disclose any financial issues
• Have several forms of I.D. available

Good Real Estate Agent

A good real estate agent is a valuable resource when purchasing a new home. They can pinpoint pricing on a home and determine whether it is too high or too low and whether the neighborhood is likely to hold its value. They will understand what you’re looking for and not waste your time with impractical choices. A real estate agent also knows what repairs to look for and can guide you toward a good home inspector. Lastly, they can objectively handle difficult negotiations with the seller and navigate the paperwork during the sale.

Your Dream House

When shopping for your dream home, consider your timetable for moving. Even an immediate closing can take upward of a month to complete, so be aware of dates and have a plan in place. Be sure to visit open houses and drive through surrounding neighborhoods to get a snapshot of the area. Research local schools and surrounding sites and attractions.

Purchase Offer and Renegotiation for Home Buying

Once you’ve found the house that you want to call home, it’s time to make an offer. Your realtor will advise you on what terms you should include and what a good offer will look like. Additionally, you will want to have the following in your buying a home checklist:

Real Estate Attorney

A real estate attorney oversees all aspects of a home sale from initial signing, through negotiations, and the final sale. They are required in some states, but even when not required, they help avoid mishaps and assist with negotiation in a calm and professional manner.

Home Inspection and Appraisal

An appraisal is simply a determination of what the home itself is worth. This is done by a professional and paid for by the buyer. An appraisal protects the lender, but the inspection is a protection for the buyer. A home inspector will check the new home for potential problems inside the home and on the grounds. They have a list of over 1,000 checkpoints such as faulty grading, water damage, foundational integrity, roofing, and rot or decay in the structure.

Closing on Your New Home

Closing is the final step of home buying. This is simply the meeting when the purchase becomes official. It’s best to schedule at the close of a month. Be sure to have already reviewed the paperwork with your real estate agent or real estate attorney so that you can move quickly through signing.

Though homeownership is an anticipated and welcome event, the home buying process itself can seem daunting with its many responsibilities. However, with a bit of planning, foresight, and research your dream home can become a reality. A big first step is building your team of home building experts. This includes a local representative who can guide you through the home buying checklist with ease and help you find the local professionals to best assist you on your home buying journey. Reach out and speak with a Hero Home Programs expert today.

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