One 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!
Appreciation
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!
Paying
yourself
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!