What Percentage of Your Net Worth Should Your Home's Value Be?

When you hear the words "net worth," images of highly wealthy icons from Bill Gates to Beyoncé probably cross your mind, but you don't have to be rich to have a net worth of your own. In fact, everybody has one. Not only does everyone have a net worth, knowing what yours is can be an extremely valuable tool for understanding the big picture of your financial situation.

Factoring home ownership into your net worth not only helps you understand if your assets outclass your liabilities, it also helps you responsibly gauge your budget when you're in the market for a new house.

For many Americans, especially those who don't hold stock or other major investments, owning a home is one of the most direct, significant and effective ways to increase net worth. According to the New York Times in 2017, the average homeowner in the U.S. has a net worth of $195,400. To put that figure in perspective, the average American renter only has a net worth of $5,400 – 36 times less than that of the typical homeowner.

Speaking to CNBC in 2017, financial adviser David Bach calls buying a home "an escalator to wealth."

Calculating net worth itself isn't based on percentages; no asset is worth more of a weighted percentage than any other. Rather, your net worth is the sum total of your assets (including stock, bonds, cash and savings, retirement accounts, annuities, valuables, property and more) minus your debts (like mortgages, loans and credit cards). If you're in the market for a new house and wondering how much of your total net worth should lie in your home's value, the general rule of thumb is about 20 to 30 percent.

Bach recommends paying at least 10 percent down on your home and making sure that no more than 29 percent of your gross income goes toward housing expenses (though you have a bit of wiggle room if you have no other debt – up to about 41 percent is acceptable in such a case).

Though household net worth in the United States is at an astronomical high, hitting a record $98.74 trillion in the last quarter of 2017 per Federal Reserve figures, home values aren't on every American's mind. In 2016, home ownership in the U.S. was lower than it had been since 1965. While the combination of rising real estate prices and stagnating wages has certainly made home ownership less accessible for millennials and middle-class families, Patrick Sisson of Curbed writes that "Stocks and real estate continue to be the engines of American wealth generation" in 2018.