How to Get Rich (or at Least Wealthier) by Buying Your First Home
If you're looking for ways to get rich, or at least richer than you are now, signing a 30-year loan doesn't exactly sound like the best idea, but buying a home can be a great way to start building wealth. In fact, in 2013 the net worth of a typical homeowner was $195,400 while a typical renter's was $5400, that's 189% difference. So, how does buying a home help you get rich?
You Have to Live Somewhere
Some argue that tying your money up in housing means you can't invest that money somewhere else where you might get higher returns. But you have to live somewhere and, unless you're lucky enough to have a place to live rent-free, you're going to need to spend a big chunk of your monthly income on those living expenses. Not only is paying a mortgage cheaper than renting in many cities, owning your own home also protects you against rising rents in your city, which is great if you live in an expensive city. And when you do pay off your mortgage, you'll be able to live there without paying a monthly fee. Once you do, you open yourself up to new investment opportunities, like buying a new, affordable home and renting out the one you own outright.
Get Richer with a Forced Savings Account
Buying a house forces you to start saving money--starting with the downpayment. Starting to save toward a home will get you into the habit of saving a big chunk of money each month and once you have the home, you'll need to save for the unexpected, which will help you continue that good habit. Your home forces you to save for more than maintenance, though. Every month you pay your mortgage, you're building equity in your home. You can use that equity to do things like take out a home equity line of credit or you can just let it build until you decide to sell your house. Wondering how quickly your equity builds in your home? Use our mortgage payoff calculator to find out.
Access to Home Equity Lines of Credit
Speaking of equity, buying a home also gives you access to a home equity line of credit or HELOC. While it could get you into trouble if you use it to finance a vacation, it's a great tool if you need to pay for something like a medical emergency, childcare so both spouses can continue working, or a college degree. The idea is you're using a relatively low-interest loan to either offset some sudden, unexpected cost that would otherwise wipe you out financially. Or you're using the HELOC as a way to improve your situation over time and give you the ability to earn more money either through your education, by staying in the job market, or adding value to your home.
Owning a home is the American Dream, right? Well, our tax system definitely helps support that dream. When you own a home you can deduct your mortgage interest (up to a point). You're eligible for other deductions, too. If you made any home improvements, use your home as your primary office, or made energy upgrades on your home, you might be eligible for a deduction. Check with your tax accountant to get all the benefits you can out of your home.
When you own your home, that also opens up new options for you in retirement. You can downsize to a smaller home and invest the profits from the sale. You can continue to live in it without having to worry about your monthly mortgage. You can even use a reverse mortgage early in your retirement--a strategy recommended by retirement experts.
Sure, we've seen a rise in interest rates at the end of 2016, but for now, if you want to get rich, buying your first house is still a great start.