Is owning your home the American dream? Maybe. But before we can argue either way it begs the question: do you really own your home in the first place?
After the Great Recession, we’re all very much aware of the dangers involved with home ownership. But before that, owning a home was widely considered the #1 wealth building tool. Right now I don’t won’t to focus on whether purchasing a home is a good investment or wealth building tool. Nor do I want to focus on the owning vs. renting debate. I want to focus on whether you technically even own your home.
What is Ownership?
Owning something means possessing something that no one has the right to take away. If I go to the store and buy a TV, I own it. No one can come and take that TV from me without stealing it. But this just isn’t the case with your home.
There are many legal ways that it can be taken from you. For that reason, I feel the term homeowner is just a manipulation.
The majority of people take out a mortgage to purchase their home. Until that mortgage is paid off, the bank has a claim on your property. If you have $200,000 in debt on something, is it right to claim you own it? Stop paying that mortgage and you’ll see who really owns the property. Yet we put 3-5% down and announce ourselves as homeowners. Seems a little entitled to me. After paying the mortgage off for 15 years, 30 years, or maybe even 50 years due to refinancing, then you finally own it “free and clear.”
Except you don’t.
Regardless whether you purchase your house with 100% cash or take out a mortgage, you still owe property taxes each year. Property taxes are essentially an annual fee on your house. If you have a mortgage, the annual property taxes are often divided into monthly payments and held in escrow by the lender. What do you call a monthly payment to live somewhere?
I call it rent.
What do you call an annual payment to live somewhere. Again, I’d call it rent.
You are always renting your home from the government. If you do not pay your property taxes (or your rent), your home won’t be your home for much longer. The taxing authority will file a tax lien on your property and you could lose it in a tax sale if the delinquent amount is not paid. Unlike most forms of debt, property taxes do not have a payoff amount. You can’t make a lump-sum payment to pay off your property taxes for the rest of your life. They must be paid each and every year. On top of that, the property taxes will most likely go up each year. Just like rents.
There are other types of liens that can be filed on property, such as HOA and water/utility liens. I have seen people who purchased their home entirely with cash only to lose it by not paying their homeowner’s association dues. Not only have I seen it, I have actually purchased these HOA foreclosures at auction. There are also instances of people losing their homes due to water bills. A couple hundred dollar water bill balloons into a several thousand dollar lien after interest, an insurmountable cost for some.
If you truly own something, you should be able to do with it as you please. If I want to take my TV apart to see what it’s like inside or even go Office Space on it and beat the crap out of it, no one is going to say anything to me. Except maybe, “Idiot.” But if part of my house is falling apart or the grass grows too long, I can be cited for a code violation. These violations accrue daily until they are resolved. If you want to make changes to your house, you often need a permit. With so many restrictions about what you can and cannot do with your home, is that indicative of ownership?
Even if you follow all the rules and pay all your bills, there are still ways your home can be taken away from you. What if all of a sudden the government decides to build a highway right where your house is located? Or a strip center? Now all of a sudden you may be forced to sell your home… and most likely at under market value so the land can be repurposed. Meanwhile, Samsung is not going to come to you and say, “Hey, we want this TV back. We made a great TV and we’d like it back so we can use some of the pieces in our next model. We’re taking it now.”
What Term is Appropriate?
If you’re not a “homeowner,” what are you?
We established that you are a renter. Always. Unless you live in one of these 18 countries without property taxes. At the same time, you are more than a standard renter as you do have financial interest in the property.
That would be the more accurate term. The title of the property is in your name. But no one wants to use that term. Why would you pay 400k for something you don’t actually own? How could you convince someone to buy something for 400k that they won’t own?
I work full-time for a house flipping company where my job is purchase houses at auction that were foreclosed on for one of the above reasons. In other words, from “homeowners” who lost their homes.
The term homeowner is a manipulation, but it will never leave our vocabulary because it will be perpetuated by those who make money off of its use. Additionally, we will perpetuate it ourselves. A little white lie we tell ourselves so we feel the pride of “ownership.” It’s a choice-supportive bias.
Purchasing a home can be a great investment or a terrible investment. When making the decision, it is better to focus on the financial costs and benefits in your particular situation. Not a false idea of ownership. Unless your dream is be a titleholder. Because that is, in fact, the title you hold.