Home Ownership

By David Godsted, Director of Outreach , Networks Financial Institute

June is National Home Ownership Month, a time when American’s can celebrate the meaning of the “American dream.”  In the last decade, however, the goal of home ownership has become so easily attainable that in many instances it’s turning into a nightmare of foreclosure.

Earlier this year the 50-year mortgage was introduced in California.  Without delving into the intricacies of this creative financing vehicle or addressing the reality that on average Americans move about every seven years, one has to ask if it’s responsible to commit to a 50-year debt obligation.  While the 50-year loan is still somewhat of a novelty, homebuyers throughout the nation have responded favorably to the 40-year loan.

The ultra-low rate environment that propelled the housing boom for much of the 90’s and early 2000’s has resulted in a generation of first-time buyers that are well acquainted with the benefits of equity and a sense of entitlement when it comes to home ownership.  Incentives such as zero down payment programs offered by homebuilders and mortgage brokers make the prospect of home ownership no longer a process of saving, but one of instant gratification.  Even existing homeowners increasingly view their homes as piggybanks with the second mortgage, once viewed as a last resort, becoming a popular means of financing vacations and recreational vehicles.

Unfortunately, the term “homes” and “credit” have become virtually interchangeable in today’s lexicon.  The proof of this correlation can be seen in Indiana’s high home foreclosure rates; for several years’ Indiana’s foreclosure rates have been among the highest in the nation.  A number of factors impact the home foreclosure rate including social issues, the economy and education. As individual employees, parents and citizens we have little impact over social or economic agendas.  However, we’re all empowered to make educated economic decisions and to pursue home ownership in a responsible manner.  

A home is the single largest investment most of us will ever make; yet many people spend time more time educating themselves about their next vacation than learning how to save and budget for a home. A $200,000 home at 6.5% interest will cost about $455,000 paid over 30 years.  Paid over 15 years, the $200,000 home will cost about $313,000.  Over a 50-year period, the $200,000 home would cost over one million dollars.  How could the extra hundreds of thousands be used toward higher education, healthcare and retirement costs?  

Economic skills like calculating property taxes as well as the personal discipline to set money aside for maintenance repairs need to be developed years before the closing on a first home.  Financial literacy is more than the ability to balance a checkbook or complete a tax statement.  It requires the discipline to establish a budget and stay within the budget parameters.  The concepts can be introduced in childhood and continued throughout a lifetime.  Resources such as HUD provide online materials to coach home buyers in responsible purchasing.

At Networks Financial Institute at Indiana State University, we’re committed to improving financial literacy with results-driven programs including Kids Count on the Money Bus™, a personal financial literacy program that serves as a field trip that comes to schools for third through fifth graders.  The curriculum and activities teach students to differentiate between “wants and needs,” develop a monthly budget and avoid impulse purchases.  We’re also privileged to work with the Inside Indiana Business team on addressing our State’s financial literacy level.

There’s no doubt about it; home building is an important part of our economy.  But without the proper knowledge and financial skills, achieving the American dream may turn into a nightmare. 

David Godsted is director of outreach for Networks Financial Institute at Indiana State University. Networks Financial Institute considers financial literacy to be a lifelong learning endeavor, and its financial literacy programming, under the banner of “Cash Counts,” has been created utilizing standards based, stakeholder driven approaches. For more information, visit www.networksfinancialinstitute.org. Or contact David at david.godsted@isunetworks.org.

References:

“The 50-Year Mortgage is Here,”  MSN Money

http://moneycentral.msn.com/content/Banking/Homefinancing/P150992.asp?GT1=8201

“The 50 Year Mortgage is Introduced in California,” Mortgage News Daily

http://www.mortgagenewsdaily.com/5162006_50_Year_Mortgage.asp

“50 Year Mortgage Debuts in California,” Bankrate.com -

http://www.bankrate.com/brm/news/mortgages/20060427a1.asp