There are a lot of reasons someone might want to become a landlord — they would rather own real estate than stocks, or they know how to do handyman work — but at the top of the list is always making a profit.
That’s not a bad thing, but it does rely on renters to help pay for that profit. The landlord doesn’t just have to make enough money to cover the property, repairs, and any loans to pay for it, but also make enough profit from collecting rent to make it worth their trouble.
Still, renters don’t always have to help their landlord get rich. When someone buys their own house, they’re helping themselves profit instead of helping a landlord.
BUILD UP EQUITY
Equity is the difference between what you owe on a property and what it is actually worth. Over time, as homeowners make their house payments and build up equity, that can amount to a sizable pile of cash. They owe less and less on a house that is worth more and more.
For some people, building equity in a house is an important part of their retirement plan. They may choose to pay off the house entirely, or they may sell it and use the proceeds to help fund their golden years.
In any case, financial planners say buying a house is a smart idea for people who want to build wealth over the long run.
GET CASH OUT
Sometimes emergencies arise that force people to dip into their savings. If someone has built up equity in their house, that’s one more place they can turn for the money without raiding their retirement fund.
In most states, home equity loans help people who need to tap into that money, so making extra principal payments on a home can actually build a financial safety net. It’s definitely a savings incentive — it won’t be as easy to spend and waste as money sitting in a checking account — but it will be there if you ever need it down the road.
If you haven’t already started building equity by owning a home, now is the time to begin. The earlier you start, the more equity you can build up over time.
As they say, time is money.
FIRST-TIME HOMEBUYER TIPS
CHECK YOUR CREDIT SCORE
Your credit score can make a big difference in what kind of interest rate you’ll pay on your home loan — or if you can qualify for a loan at all. It’s important to know your credit score up front. Not only will it help you know what to expect when shopping for a mortgage, it can also alert you to potential problems.
Credit reports aren’t always accurate, so getting a copy of your report early in the buying process will give you time to iron out any issues that you might uncover along the way.
REAL ESTATE GLOSSARY
LOCK IN — An agreement for a lender to offer an interest rate for a certain period of time. Buyers can pay lenders a fee to lock in a rate that they see as favorable.
CLEAR TITLE — A title that is free of legal questions or liens on the property.