Understanding the Link Between Financial Literacy and Successful Homeownership

July 24, 2023

By Kevin Donaldson

Homeownership is a significant milestone in many people’s lives. It brings a sense of accomplishment, security, and for many, the cornerstone of their wealth. However, the journey to homeownership is paved with complex financial decisions and obligations. Thus, a firm grasp of financial literacy is the key to successful homeownership.

Demystifying Financial Literacy

As we navigate the course of life, financial literacy emerges as a fundamental skill set. But what is financial literacy? Simply put, financial literacy refers to the comprehension of various financial principles and tools needed to make informed and effective decisions regarding one’s financial resources.

Digging deeper, financial literacy covers several key areas:

Budgeting: This is the practice of creating a plan for your income and expenses. It involves categorizing spending and tracking it to ensure you live within your means and save for future goals.

Saving and Investing: Understanding the difference between saving — putting money aside for short-term goals — and investing — allocating money for long-term growth — is crucial. Knowledge about compounding interest, risk and return, and different types of investment vehicles is also included in this area.

Debt Management: This includes understanding various forms of debt like credit cards, student loans, and mortgages, and how to manage them. It’s important to know how interest on debt works, and the consequences of defaulting on debt payments.

Understanding Financial Products: From insurance policies to retirement accounts, there is a wide array of financial products. Knowledge about these tools, their benefits, costs, and how to choose the right ones based on individual financial goals is part of financial literacy.

Financial Planning: This involves setting short-term and long-term financial goals and creating a roadmap to achieve them. This could include planning for retirement, children’s education, or buying a home.

For aspiring homeowners, a specialized subset of financial literacy comes into play — financial literacy for homeowners. This involves an understanding of home loans, mortgages, property taxes, home insurance, and the ongoing costs associated with homeownership.

Understanding Finances: The Key to Homeownership

When exploring the connection between understanding finances and successful homeownership, several key areas take the spotlight:

Evaluating Financial Standing: Before considering homeownership, one must accurately assess their financial health. This includes a comprehensive review of income, expenses, existing debt, and savings. Financial literacy empowers individuals to scrutinize their financial situation and determine how much house they can realistically afford. This step is critical in avoiding overextension of resources and potential financial distress.

Understanding Mortgage Options: The mortgage market presents a plethora of options that can feel overwhelming to navigate without adequate financial literacy. From conventional loans to government-insured loans, fixed-rate to adjustable-rate mortgages, each has its pros and cons. Understanding these intricacies enables prospective homeowners to choose a mortgage option that aligns best with their financial goals and risk tolerance.

Managing Property Taxes and Insurance: Homeownership comes with ongoing costs, including property taxes and home insurance. These costs can fluctuate and need to be incorporated into the household budget. Financial literacy offers the skills to manage these costs effectively, ensuring they don’t become a financial burden.

Planning for Maintenance Costs: Homes require ongoing maintenance to retain their value and livability. These costs, both expected and unexpected, can add up over time. Financial literacy guides homeowners to anticipate and budget for such expenses, helping to avoid debt and financial stress.

Building Home Equity: Home equity — the difference between the home’s market value and the outstanding balance of all liens on the property — represents a homeowner’s financial interest in the property. With every mortgage payment made, home equity increases, thus gradually building wealth. Financial literacy empowers homeowners to understand this process and explore ways to accelerate equity growth, such as making extra mortgage payments.

Without these financial insights, homeowners might face financial difficulties, with the worst-case scenario being foreclosure. In contrast, robust financial literacy equips homeowners with the understanding and tools needed to navigate their financial journey successfully. This becomes the foundation to enjoy a stable and rewarding homeownership experience.

The path to homeownership can be complex, but the rewards are many. However, to fully realize the benefits of homeownership, homeowners must equip themselves with financial literacy.

By investing time and effort into understanding finances, individuals can navigate the journey to homeownership more confidently and effectively. Whether it’s about making informed mortgage decisions or planning for maintenance costs, financial literacy serves as the backbone of successful homeownership. In the end, financial literacy isn’t just about buying a house — it’s about building a home you can sustain and thrive in.

At Habitat for Humanity of the Charlotte Region, we offer a financial literacy program called Money Matters that is designed to help area individuals and families improve their financial knowledge. The three-week program focuses on homeownership in the Charlotte region and assists program participants in their pursuit of homeownership and improved financial well-being. Topics include household budgeting, credit building, investing, retirement, and more. If you’d like more information about the Money Matters program, please contact us today!

We rely on our donors and volunteers to make our work possible. They are the ones who provide the benefits of homeownership to the individuals we serve by contributing to our programs, including through planned giving. There are many different ways to contribute to the crucial work that we do.

Through faith, innovation, and passion — and thanks to the support of countless community partners, volunteers, donors, and advocates — Habitat Charlotte Region has made a significant impact in Charlotte and the surrounding area since its founding.

We envision a world where everyone has a decent place to live, and have served over 4,000 families as we work to make that goal a reality. We seek to put God’s love into action by bringing people together to build homes, communities, and hope. We are committed to serving the community while recognizing that change and adaptability are key to intensifying our impact.

Habitat Charlotte Region welcomes volunteers, supporters, and potential homeowners from all backgrounds. You can help us make a difference in the lives of others in the community by signing up to volunteer with us today! You can also get involved by supporting our work with a donation or even exploring our Homebuyer Program!

July 24, 2023