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For many families, building and eventually sharing generational wealth is a top priority, and owning a home can help achieve this goal.

Generational wealth refers to any assets, such as cash, investments and real estate, that can be passed down to children and grandchildren. Owning a home in particular can be a great way to jump start wealth building. Let’s explore generational wealth in more detail and dive into the value of homeownership.

Understanding wealth in the U.S.

Generational wealth is considered a foundational building block, though it’s one that different groups, especially marginalized groups across the country, can find to be less attainable. For example, as of the fourth quarter of 2023, Black families owned about 23 cents for every $1 of white family wealth, on average.¹

Related to this wealth gap is the homeownership gap. Homeownership in the United States increased to 65.5% in 2021, but Black homeownership has only increased 0.4% in the last 10 years, and the overall gap between the two groups is the largest in a decade.² Owning a home is often a key part of the “American dream” and building generational wealth, but for some, this dream can feel unreachable without help. It can seem even more daunting if you’re thinking about buying a home for the first time, especially if other family members haven’t gone through the process before.

Minnesota has implemented two programs that can help a first-generation homebuyer purchase their home. Other programs in Minnesota and elsewhere are geared toward helping buyers navigate the system for the first time. If you have questions about the new Minnesota programs or other homebuyer assistance programs, connect with a trusted mortgage partner today.

How homeownership helps you build wealth

Homeownership is a big part of generational wealth building because of the equity your home can build over time. Equity refers to shifting your debt into an asset. Paying down the balance of your loan increases your equity, along with any improvements you make to your home that help it grow in value. Your home’s worth can’t fully be turned into spending power until the home is sold, but it is one of the few items you pay off that will increase in value over time, unlike a vehicle, which will depreciate quickly.³

Owning a home rather than renting is a big step, but it can be vital in building wealth. In 2022, renters spending more that 30% of their income on rent reached a record high.⁴ Over the past three decades, the wealth gap between owners and renters has increased by 70%. Homeowners are often able to refinance, lower their payments because of the money they’ve already paid to their mortgage and invest in their savings, while renters often have no control over their housing expenses and therefore tend to build less wealth.

Other important things to consider

Your home will likely be your largest asset, but anything that you own that can be converted into cash can be considered an asset. Financial accounts, including emergency funds and college savings accounts if you have children, are important assets to grow.

Establishing good credit history can help facilitate generational wealth building. Having healthy credit will open the door to more lending opportunities, which in turn can make it easier to purchase a home and build equity. Paying your loans on time, staying below your credit limit and only applying for credit you need are a few ways to start building and maintaining good credit history.

Building generational wealth takes time, but it is attainable with the right plan. Talk to your banker about how you can make this dream a reality and how to be sure your loved ones are taken care of financially in the future.