Retirement seems so far away when we are young. It’s easy to completely forget about it when life is moving fast and our only worries seem to be what is right in front of us. But eventually that day will come, and those who prepare early will still be living the good life when night clubs become golf clubs. One way to get an early jump on comfortable living after retirement is by owning your own home – and buying it early.
It Can Build Equity
When you make monthly payments on your new home, some of that money goes towards paying down the debt owed. With each payment, the equity rises because the amount owed against the amount the home was worth has decreased – essentially, you’re making money. With the housing market currently on the rise, that equity has the potential to build even larger month after month because the debt is being paid down while the value is going up. This is what makes buying a home an integral part of any retirement plan. While you are living your life in the home you enjoy, you are collecting a large sum of money behind the scenes. A chip that can be cashed in when you are ready to retire and move into something you’ve always wanted – that condo on the beach, townhouse at the exclusive golf community, or dream cabin in the woods. Many even choose to downsize after retirement because their children are no longer living with them. That extra money can go towards rainy day savings or trips around the world.
It Can Build Credit
Buying your home, usually means taking on a mortgage. Those monthly payments, when made on time, build your credit and increase scores. An optimal credit score will have a combination of installment debt and revolving debt. Installment debt includes things like student, auto, and home loans. If you own your own car or are just about to finish paying off those student loans, you need another installment loan like a mortgage to enhance your score. And a mortgage will keep installment debt a part of your credit profile for years. Initially, since lenders make inquiries on your credit history your credit will take a hit. But not to worry; the regularly paid loan will reap rewards in the long run. Plus, eventually paying off the loan, which will likely happen near retirement, will give your credit an additional boost. Establishing good credit early on will increase the likelihood of qualifying for other loans and credit cards with lower interest rates and down payments throughout your life. This leads to more savings stashed away for retirement.
It Can Bring Income
Right now, the housing market is climbing, but there are still outstanding deals out there. Highly affordable distressed homes are being snatched up across the nation, making now an ideal time to jump into the housing market and buy a property to rent out. According to RealtyTrac, the median sales price of a foreclosure home in May was $115,000, which is 44% lower than non-distressed home sales. Distressed or non-distressed, becoming a landlord has huge wealth accumulating potential. Even if you are breaking even on rental payments to mortgage payments, it is still you, and you alone, who is gaining the equity. If you have the desire to retire early, you may even choose a 15-year mortgage, which will have higher payments, but a lower interest rate. If you can afford it, a second home and the income it brings just may be your key to a care-free, early retirement.
If you want more information on purchasing a home, contact one of our Maryland realtors and begin searching for your new home!