Does home ownership increase homeowner wealth?
It absolutely does. First, simply by paying off a home loan, builds wealth. And, you are doing this each month in a regular and disciplined way. Second, it is likely though not certain, that the market value of your house will increase over time. Nationally for several decades, housing prices increased, on average, four percent annually, although the recent recession reminded us that they can go down as well as up. In essence, it is a forced savings/retirement plan.
The most effective way to save for a down payment on a home is to set aside a portion of each paycheck. With direct deposit, your employer can split your paycheck between checking and savings accounts. Or, ask your bank or credit union to regularly transfer a certain amount from your checking account to your savings account. Also, ask your financial institution about other savings products that can help you save more. If you need assistance finding money to save, give us a call! We have debt elimination and saving strategies as well as down payment assistance programs that can help you make your first purchase.
Financially Prepare Yourself for Home Ownership
Almost anyone can afford to own a home with proper preparation. Develop a savings plan to build up money for a down payment at purchase, for moving expenses, and for post-purchase emergency expenditures such as needed home repairs. Remember, the larger your down payment, the lower your home loan payment. America Saves can help you develop a plan with regular monthly deposits in a bank or credit union account. At the same time, reduce your credit card and other debts in order to increase your ability to afford a house. Lowering these debts will increase your credit score and your chances of getting a lower-interest loan.
Purchase a Home
Get qualified for a home loan before you look for a house, condo, or co-op. That will give you some idea of whether you can afford to purchase a home and, if you can, at what price. Make certain you contact at least three lenders, including your primary financial institution. This will help ensure that you get the least expensive loan for which you can qualify. Be especially skeptical of uninvited loan offers you receive through the mail, by telephone, or online. In looking for a home, most home buyers find it helpful to work with a real estate agent. Consider using an agent that will work solely for you as a buyer representative.
Make Home Loan Payments on Time
Making home loan payments on time will help you build wealth and avoid costly penalty fees. If payments are missed, you could lose your home through foreclosure. To help ensure that you can afford timely payments, maintain an emergency fund you can dip into when needed. There should be enough money in this account to pay for needed home repairs as well as emergency expenditures. The easiest way to build an emergency fund is to automatically transfer funds monthly from your checking to your savings account. What you don’t see, you won’t miss.
If You Have Difficulty Making Payments Seek Help
Don’t wait until you miss a loan payment to look for help. Seek assistance as soon as you are aware that you might have difficulty making payments on time. Contact your lender, keeping in mind that all reputable lenders want you to succeed as a homeowner. Your lender will appreciate your call and should work with you to solve any problems. You can also get free advice from a housing expert. HUD-approved housing counselors will work with you and your mortgage company on your behalf. Call 888-995-HOPE (4673) to speak with an expert about your individual situation.
There may also be federal and local assistance programs available to help you. The Departments of the Treasury & Housing and Urban Development created the Making Home Affordable Program to help homeowners avoid foreclosure.
Be Cautious in Borrowing Home Equity
Remember that your home equity is wealth. If you take out a home equity or other second mortgage loan, you are spending your wealth. Experts agree that some reasons for home equity borrowing are more appropriate than others. Certainly one legitimate use would be covering the expense of major emergencies, like a big medical bill, if you don’t have sufficient savings. Other appropriate uses include home improvements and education. Experts believe that the least appropriate use for home equity borrowing would be for unneeded luxuries. This could include an expensive car, rather than basic transportation, or a costly vacation. You should also try to avoid relying on home equity loans to cover basic living expenses except in transitional periods between jobs. Most importantly, make the decision yourself as to whether you need a home equity loan and, if you decide you do, contact at least three lenders. Be especially wary of uninvited loan offers that you receive through the mail, by telephone, or online.