Purchasing a home used to be considered the biggest investment in an individual’s life and a secure way to build equity. The idea was to buy a home as a young couple, and hold on to it while raising children and into old age. In the long term, the property would surely appreciate and make the couple a hefty profit just in time for retirement.
The recent real estate crash provided us with a reality check. Real estate prices do not go up forever. People still purchase homes, of course. According to the U.S. Census Bureau, the homeownership rate in America is roughly 65%. However, pride in ownership isn’t what it used to be. Young couples today know that they can live happy, productive lives without becoming homeowners. There are other ways to invest, so when they choose to buy, they do so with cautious optimism. Here are 3 ways to make the most out of your money when purchasing a home.
Buy The Right House
Pick a home that you can afford and that you plan to live in for a while. Mortgage loans are tricky. Most of the initial payments go towards the loan’s interest. For example, if you borrow $300,000 at 4% for 30 years, your monthly payments will be just over $1,432. $1,000 of your first payment will go towards interest. A year later, you’re still paying almost $984 towards interest. Very little money goes towards the loan’s principal which means that equity builds slowly. You must live in the home for a while before money goes towards the principal, so make sure you’re in a home that you love and that you can grow in.
Pick The Right Spot
The other way to make money on real estate is to have its value increase over time. Demand pushes home prices up, so purchasing a home that is interesting to you and others will help in the long run. It’s difficult to know when the market will swing up or down, but you can help yourself by selecting a home that others will want to buy when the time comes. Homes that are in residential neighborhoods, and close to parks and schools, are attractive to families. Students and working professionals like to have many transportation options. Gauge your community. Who lives there and what do they favor? When it comes time to sell, the more interest there is in your home, the more money you will make.
Make More Payments
As mentioned, it takes a while for money from your monthly mortgage payment to go towards the principal of your loan. Ensuring more of it goes towards the principal will reduce the loan interest and shorten the length of your loan. You can do this by simply making extra payments to be applied solely towards the principle. Another technique is to switch to biweekly payments. Paying every two weeks, instead of on a monthly basis, is a painless way to add an extra payment.
Although purchasing a home is no longer a given for young people, in the long term, it is still a good way to build equity and increase your net worth. By understanding how your mortgage loan works, and with the proper attention, you can make the most from your real estate investments.
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