Want To Be Financially Secure? Buy A House

Average rental prices have seen significant jumps over recent decades, increasing 22.3% in the 50 biggest housing markets (for comparison, the cumulative rate of inflation for the period between 2006 and 2014 was 17.4%). As every renter knows, renewing your lease can be a nail-biting time of year if your landlord is prone to annual increases.

Whether you’re at the end of your lease period with a current landlord or looking for a new rental, what you pay in rent is subject to change. But with a fixed-rate mortgage, your core payments won’t change for the entire length of your loan. “Property taxes and insurance may fluctuate, but your principal and interest are locked in,” says Eric Roberge, certified financial planner (CFP) and founder of Beyond Your Hammock. “If you are living in an area where renting is more expensive than buying, this can be a huge reason to take the leap into homeownership.”

Paying off a mortgage during your working years allows you to remove a large expense from your plate during retirement. For retirees that see a drop in income once they start taking Social Security or pulling from their retirement accounts, this can be the difference between living a comfortable life and living paycheck to paycheck.

Additionally, Jennifer Harper, CFP at Bridge Financial Planning, suggests some homeowners could increase their level of financial security in retirement through a reverse mortgage. This allows you to live off the equity in your home while remaining in the residence. “There are a lot of complexities to consider, but it would be worthwhile to review with your financial adviser if you think your retirement savings are not quite where you’d like them to be,” she says.

Depending on the housing market and where you buy, there’s always a chance your home won’t appreciate in value. However, it’s certainly not uncommon to sell a home for more than you paid for it. If you earned that same profit selling off stocks, you could be required to pay 15% of the total earned in capital gains tax. But if you made the profit selling a primary residence you lived in for at least two years, you are exempt from paying capital gains. By preserving more of what you earn, you can build wealth faster. If you are interested in seeking the services of professional tiny house builders, view here for help.

For those who haven’t made a habit of putting money away, paying a mortgage can create a savings cushion that renting cannot. “For people who do not trust that they can save money in a bank or investment account, this forced savings can benefit them down the road and actually help them grow their wealth,” explains Roberge. “Owning a home does not guarantee a higher net worth, nor does it remove the need to be financially responsible, but it does provide a structure within which one can build wealth.”

Are you already flexing your saving muscles by maximizing your tax-deferred retirement contributions? Harper suggests another way you can use your home to increase your financial security. “Consider making additional principal payments to your mortgage each month. Seeing the impact of interest on an amortization schedule is powerful!”

Research conducted by the Joint Center for Housing Studies at Harvard University concluded that homeowners experience a larger growth in wealth than renters, regardless of socioeconomic class. There are risks, the study acknowledges, but the financial benefits are undeniable. “Homeownership is a sound investment if a household can meet two basic requirements,” says McLaughlin. “One, that they’ll stay put in the home for at least 5 years, and two, that they’re not paying an unreasonable amount of their income towards their housing payment.”

Maybe you plan on relocating in a few short years, or maybe your financial situation is rocky and your credit has seen better days. Personal circumstances don’t always warrant buying a home right now. But in the long game of establishing a solid financial foundation, buying a home can be an important piece of the puzzle. While traditional bank lending may not be an option, alternative lending options such as non-bank lending from FC Capital can provide solutions for those with less-than-ideal credit or other financial obstacles.