- June 17, 2020
- Posted by: Peter Kania
- Category: mortgage
As the saying goes, buying a home is an investment.
Many young people are renting apartments because they believe they cannot afford a home or condo at a young age, and that they need to save more.
Let’s debunk this myth.
Landlords need to charge rent that covers their mortgage payment, taxes, insurance, and other expenses such as paying for a property manager, landscaping, or snow removal. Your rent payment includes all that, plus whatever profit the landlord needs to make.
If you can buy a house or apartment paying less than what you would pay for rent, that would be a no-brainer.
How does owning a home and paying a mortgage instead of rent build wealth?
Every payment you make pays into owning equity of that property. As you build more equity, you build your net worth. When you go to apply for loans – any type of loan, whether it be a car loan, home loan, or business loan, you are asked to list your assets. Having equity in real estate is an asset.
Meanwhile, every rent payment you make, it is not benefiting you financially in any way for the future, other than paying a fee for living in a property. While you are paying rent, it will be harder to save for a down payment. How much of a down payment do I need? Check out this article that covers that. As you are paying rent and trying to save for a down payment, you are missing out on building equity in your own property.
Another great strategy that I tell my peers about to build wealth is by purchasing a property that has 2 or more units. That way you live in one unit, and rent the second one out. You charge rent that covers an amount of your mortgage payment. Kind of like having a roommate but at the end of the day you own the entire property and its equity. The standard is to get a 30-year fixed-rate mortgage. No, you don’t have to live in it for 30 years, it just makes sense to have a lower monthly payment as opposed to a 10 or 15-year term which results in substantially higher monthly payments.
A cool feature of buying a property that is 5 units or less is that as long as you live in one of those units, it qualifies as a residential mortgage as opposed to a commercial mortgage. With a residential mortgage, rates are often considerably lower than commercial mortgages that are non-owner occupied and you have the FHA program which helps First-time Home Buyers. Might as well take advantage of the low rates in the mortgage market as commercial rates are significantly higher right now due to market conditions. Regardless of market conditions, residential properties’ mortgage rates are always lower, so keep that in mind.
This article was inspired by questions my peers had asked me about buying a house or apartment, getting started in investing in real estate, and mortgages. It’s pretty cool that people are interested in this and me being able to teach this knowledge so people know that buying instead of renting is not far out of reach.
I am a licensed professional at Northeast Financial, based in Middlefield, Connecticut. Contact me today and see what a difference it can make with your mortgage. I have access to multiple mortgage lenders to get you the lowest rates. Check out our 5-star reviews on Google, Zillow, and more.
Office: 844.788.7237 x5264