“Financial independence is the ability to live from the income of your own personal resources.” Jim Rohn
It’s a secure feeling, owning your own home with an affordable payment so you and your family can enjoy living life together. It’s a feeling of satisfaction knowing that as the value on your home goes up, and the balance on the mortgage gradually gets paid down, you are building wealth for yourself and those you love.
1. Know your comfort level for a payment and down payment.
Experts on podcasts and financial posts suggest keeping your total house payment under 33% of your gross income. They recommend keeping your total house payment and payments on other debt no more than 43% of your gross income. Keep enough savings in the emergency fund to get your family through an emergency. Don’t rely on the mortgage loan officer to tell you what you can afford. Mortgage software often approves borrowers for up to 50% or more for their total income-to-debt ratio. How can you enjoy life if you are tied down with over 50% debt?
2. Create multiple profitable exit strategies.
Susan was trying to decide to rent or buy a home. “I don’t feel like I can afford a mortgage. What if I want to move?” Susan put together a team consisting of a reputable realtor, a lender, and her financial advisor. Susan’s realtor found her a home in a neighborhood with a long-term track record of going up in value. Rents were going up too. The FHA mortgage that Susan was getting had a qualifying assumable clause in it.
Susan felt more secure and comfortable with her decision to buy a home instead of renting. If the market was not good for selling a home when she was ready to sell, she could always rent the house to tenants and make a profit. A future buyer might pay her a large chunk of money one day to qualify with the mortgage company for assuming the payments on a lower interest rate loan.
Looking at the real estate market today
The lack of homes for sale, lots of money floating around the country, and Millennials nearing their peak homebuying years, are all stoking the housing boom. As a result, home prices continue to rise, construction costs are higher, and investors are grabbing up starter homes for rentals.
How long will the real estate boom market last?
Emerging groups of future home buyers look like they will keep the housing demand high for many years. However, the Federal Reserve is watching the employment reports, inflation, and the pandemic situation. The Fed will decide if they will taper off buying mortgage-backed securities later this fall. If they pull back their buying, mortgage rates are predicted to go up.
Real estate has historically been an excellent hedge against inflation. Locking into a low fixed mortgage rate can add a layer of financial security. Renters’ pocketbooks are squeezed as rents move up over time. With a fixed-rate mortgage, the principal and interest payment stay the same, giving the homeowner more discretionary funds as his income goes up.
