Homeownership – 13 min read

Why buy your home with Dwelling

Learn more about why Dwelling is better for first-time homebuyers than traditional options.

Homeownership – 13 min read

If you're reading this, you're probably already convinced of the merits of homeownership. The appeal of putting down roots in your own space, connecting with a family & community, and building wealth for the future has been a mainstay of the American Dream as long as anyone can remember.

Despite this, many Americans feel like they're being locked out of that dream. In recent decades, a perfect storm of soaring home prices have raised the financial hurdles for first time home buyers. At today's prices, it would take a first time home buyer over $78,000 to purchase a home with a 20% downpayment (or $27,000 & 7% down).

While wage growth has been strong at close to 5% in the last year, average home prices in the United States has grown by nearly 37% since 2020.

Combined with rising interest rates, becoming a Homeowner is getting more difficult - especially if you are buying using traditional means.

We believe that nobody should be denied the wealth and community home ownership can provide just because they don't have a mountain of cash or an inheritance to cover for their down payment and closing costs. By helping them tap into 2,500+ homeownership programs, our goal is to help 60+ million millennials become homeowners sooner than they think.

So far, we've helped match Texans with +$40 million in down payment assistance buy their first home sooner than they ever thought possible, and we're not about to stop there.

After reading this article, you'll know:

  • How the Traditional Real Estate Model Fails First Time Homebuyers
  • How Your Home Buying Timeline Impacts Your Future Net Worth
  • Why Buying with Dwelling is Better
  • How Dwelling Compares to Rent-to-Own Options

How the traditional Real Estate model fails first time homebuyers

Real estate is not an easy industry to understand, and anyone who's bought property before will tell you that your first time is stressful, confusing, and sometimes terrifying.

The truth is that first time home buyers are left to fend for themselves. Here's why.

Real Estate agents will ignore you until you're ready to buy

The commission structure real estate agents work under means they're always playing a numbers game to maximize their number of closed deals.

Unfortunately, this hurts first-time homebuyers. Many new buyers require disproportionate amounts of hands-on time to be guided through the process, and the agent has no guarantees that buyers will even be able to make a purchase.

The result? Most agents aren't interested in investing in buyers until they have a mortgage pre-approval in hand and have proven that they have enough cash saved up for a downpayment and closing costs.

Traditional agents don't justify their commission

Most real estate transactions credit 6% of the purchase price to the agents conducting the transaction – 3% to the buying agent, and 3% to the selling agent. Though agent fees technically come out of the seller's end, home buyers still pay more as sellers increase their prices to cover the commissions they must pay.

A graph showing realtor commission versus Average Us Home Prices, the graph rises exponentially to the right

This arrangement made sense when real estate prices were lower, but commissions have skyrocketed in recent years as home prices outpaced inflation by over 4x. Many believe that the job and value of a real estate agent has not improved enough to justify the increasing commission they pocket, and we agree.

Down payment assistance is inaccessible

America has been mobilizing in recent years to help the next generation of homeowners buy their first homes. Over 2,500 federal, state, and non-profit funding programs now exist to help fund down payments and closing costs. Even so, programs are difficult to find, nearly impossible to compare, and all have their own unique hoops buyers must jump through to access them.

Most real estate agents also don't deal with Downpayment Assistance Programs for the same reason buyers can't – because they're time-consuming and difficult. Though some lenders have access to these programs, many choose not to promote them for similar reasons or more nefarious ones: they can make more money if they choose not to use them.

You must find, vet, hire, and coordinate a half dozen service providers

Buyers face an obstacle course just to build a team to help them move through the home buying process. From finding an experienced agent to picking out a trustworthy moving company, buying a home is a symphony requiring conductor-level skills to build and guide a haphazard orchestra – all while doing one of adult life's most stressful activities.

While agents often help buyers find title lawyers, home inspectors, and mortgage lenders, many buyers prefer to find their own to ensure they're getting quality services rather than supporting a system of preferred vendor kickbacks.

How your home buying timeline impacts your future net worth

It may sound cliché, but it's true – buying a home is one of the surest paths toward long-term wealth. Like all things that compound over time, the length of time it has to grow can dramatically shift the value created. The earlier you buy your first home, the more wealth you stand to create.

There are several reasons why.

Owning a home is more affordable than renting, on the first day and the last

According to the Urban Institute, average home owners only spend 16% of their income on housing, while a renters spend 26%. Even when controlling for income, home owning households that make under $50,000 per year spend 24% of their income on housing, versus renters at 34%.

So why do people usually assume renting is cheaper? It comes down to buyer preferences. New homeowners tend to purchase more space when they move from renting their apartments to owning homes. A new homeowner might rent a 1-bedroom condo for a $1,500 monthly payment, but decide to purchase a 3-bedroom, 2-bathroom home with a garage for a $1,900 monthly payment. If the same homeowner had instead decided to rent the 3-bedroom home, he or she would likely pay more in monthly housing expenses.

A lien graph showing Rent vs mortgage payments, with and without Maintenance and improving costs, it shows rent payments rising across the right at a higher pace than mortgage payments and mortgage payments plus payment and maintenance improving costs

The truth is that first time home buyers improve their housing situations when buying their first homes, and this phenomenon often skews our thinking and leaves us to forget that owning a home is cheaper than renting a similar one in many cases. There are plenty of reasons why the above holds true, and we'll break them down further below.

Mortgages are an investment, rent is an expense

Renting an apartment might give you the flexibility to move easily, but you pay for it in terms of your future wealth. This argument only gets more powerful over time.

An accountant would tell you that the rent you pay is a liability – money that goes out the door and you never see again.

On the other hand, a mortgage payment is an investment. Buying your first home as early as possible optimizes the amount of time your lodging expenses contribute to your future wealth.

For example, buying a home in Houston for $300,000 with a 5% interest rate mortgage would give you $5,000 in home equity by the end of the first year. After five years, you could accrue close to $25,000 – even if your home does not appreciate in value.

Contrast this with your old roommates who continued renting the average apartment in Houston during the same time frame. They will have paid $18,000 in rent within just the first year and almost $90,000 within five years. That's money is going straight into their landlord's pocket. On the other hand, monthly mortgage payments act like an investment account that you can redeem in the future.

A line graoh showing absolute monthly housing expenses over time, it shows rent payments rising rapidly across the right while mortgage payments including principal slowly decreasing

Fortunately, real estate also appreciates in value, giving homeowners access to powerful investment returns. According to the Federal Housing Finance Agency, real estate has appreciated by close to 5% every year on average since 2000, and close to 8% every year since 2012.

This means that $300,000 home in Houston would likely appreciate at least 5% a year, bringing your home equity to over $20,000 in just one year, and adding over $100,000 to your net worth within five years.

Buying Real Estate sooner can create life-changing outcomes

While there are a few more reasons that buying a home can be a huge financial boon to aspiring homeowners, including the inflation protection and tax advantages of a mortgage payment, it's worth highlighting some of the life-changing benefits homeowners can experience.

Although there are products like HELOCs (Home Equity Lines of Credit) that can allow homeowners to take cash value for their home equity at any point, this value typically won't be captured until you sell your home. This makes home equity a primary way people pass wealth down to their children.

For many people, retiring with peace of mind, or even with enough to pass down wealth to the next generation in their families feels like a dream. A huge contributor to this wealth building happens when homeowners experience a dramatic reduction in housing expenses after paying off their mortgage, something known as the "Savings Big Bang".

Line graph with homeownership affordability big bang as the title, it compares rent payment, mortgage payment and mortgage payment plus maintenance and improvement costs. The rent payment line rises across the right while the two mortgage related lines remain stead and then dip downwards at the 30 year mark

When homeowners finish paying off their mortgage, the money that would have previously gone to pay your mortgage bill is suddenly theirs to do with what they please.

This is a big deal. At current interest rates, reaching the "Savings Big Bang" at age 55 rather than age 70 could increase your net worth by $150,000 on a $300,000 house.

Financial boons aside, perhaps the most important aspect of homeownership is the peace of mind. Owning a home insulates is us from changing markets or a landlord's whims, making it easier to connect with your community and live life on your own terms

One of Dwelling's first customers had this to say:

"This home purchase is keeping my housing costs comparable compared to what they were when I was a renter, but now I’m building equity. I have comfort in being able to have a pretty consistent housing expense for the foreseeable future. This will allow me to tackle my debt faster and contribute to another retirement stream once my Roth is maxed out. Homeownership makes me feel secure for my future."

Why buying with Dwelling is better

Now that you know why it's so important to buy your first home as early as possible, here's how Dwelling helps you do that better than any other option.

Dwelling helps you buy your first home sooner

Most renters in America (over 46 million, in fact) don't realize that mortgage payments for rentals are often less than that same property's rental price. Being able to afford the mortgage payment isn't a barrier for most renters – the upfront down payment and closing costs are.

For instance, while millions of Americans can afford the $1,600 monthly payment needed on a $200,000 home, it would take about 10 years for the median renter to save up the $40,000 needed to make a 20% downpayment.

The implications of this cannot be overstated. Saving to cover down payments and closing costs adds over a decade of saving time to the average home buyer's timeline.

Those additional years leads to dramatic reductions in the long term wealth they accrue over a lifetime. With every additional year of homeownership adding an average of $10,000 of eventual net worth, delays impacting one's home buying timeline can be devastating.

Dwelling helps aspiring homeowners jump this initial hurdle by matching them with federal, state, and non-profit down payment assistance programs that apply to their financial situation and home buying criteria. These programs are difficult to access and compare, but Dwelling makes it easy.

Keep your savings for what matters

It's no secret that buying a home comes with it's own set of knock-on expenses. Moving, renovations, and furniture all cost money, and it can make the first few years of home ownership difficult if all one's savings went into paying the down payments and closing costs.

By buying with Dwelling, new homeowners can keep more of their cash to help make their new home their own.

Buy your home all in one place (with a team that works for you, not against you)

Buying your first home is complicated and confusing enough without the added burden of sourcing and vetting the team that will help you make your purchase.

While your local agent can help you find local homes that pay them the best commission, they're almost certainly unaware of or unwilling to help you access down payment assistance programs available that can help you buy your home sooner and more affordably.

Dwelling pairs full time real estate agents who specialize in helping buyers receiving down payment assistance with an integrated mortgage financing partner. This makes the process smooth and easy, aligns incentives of buyers and agents, and helps avoid the headaches of partners untrained and reluctant to use down payment assistance programs.

How Dwelling compares to rent-to-own options

Dozens of new real estate products promising a better experience have hit the market over the last decade, but most of them don't work with first time homebuyers best interests at heart.

Rent to own options like Divvy, Landis and others

While we support other companies that are trying to make homeownership more accessible, there are issues in their model that may hurt home buyers.

Here's how rent-to-own players typically work. First, they purchase the home you want to buy and agree to rent it back to you while you save up for a downpayment and work to qualify for a mortgage. These agreements are typically known as a lease-option agreement, meaning after a set period of time (usually 3-5 years), you can purchase the home you live in at a predetermined price.

Every month, you pay rent, plus a premium (or "savings fee") that's tucked away to later apply to your future home purchase. Unfortunately, those premiums paid accrue interest to the Rent to Own company instead of you, meaning you could be losing out on up to $30,000 over three years.

In most cases, you're stuck paying rent on a property that is likely more expensive than your current lease while waiting at least three years for any potential upside. Moreover, while it's true that Rent to Own agreements typically ask you to pay more money to force you to save for a downpayment, many agreements carry big fees if you later choose not to buy the property or can't qualify for a mortgage when it comes time to buy the home outright.

Why pay a premium to be a pseudo-homeowner if you could find a program that makes you mortgage ready today?

Shared Equity Programs like Unison

Shared Equity Programs typically match the percentage of the down payment that you contribute with their own funds in return for a piece of any increase in value your home experiences into the future. This causes home buyer's to miss out a key piece of the wealth building potential in exchange for saving a few thousand dollars that Dwelling can likely find for you anyway.

Published on October 11th 2023.

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