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Change is Good: Going from Renter to Homeowner
By Jonathan Haeber
CMR Columnist
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You don't need a calculator to know that moving from renter to homeowner is a wise move. A study by Harvard University puts the average net worth of a homeowner at 34 times that of the average renter. Staggering, but true. Recently, homeowners have experienced an appreciation rate that even outpaces the stock market.
When you decide to buy a home, your first step should be to do the math. The biggest mistake you can make as a prospective homebuyer is to have eyes bigger than your wallet--you don't want to go bankrupt or be victim to predatory lending. Often this happens if you make an unwise buying decision (for example, by taking out an interest only mortgage when you know you can't even afford the interest payments, let alone the principal payments on your home).
Do the Math with an Online Mortgage Calculator
You can help prevent this by figuring out how big of a mortgage you can afford with a mortgage calculator. There are numerous mortgage calculators online. When you use it, first you'll choose a ballpark figure for a home you'd like to buy. Say there's a condo downtown you're just dying to purchase for $500,000. Next figure your monthly payment for three major types of loans.
- Interest only mortgage
- 30-year fixed-rate mortgage
- 15-year fixed-rate mortgage
Those are the three most common types of mortgages. Try to take an interest only mortgage only as a last resort, when you've exhausted all other options and know that you really want the home. Discounting appreciation, interest only mortgages rarely improve your financial situation; it's just giving your monthly paycheck to a bank rather than a landlord. Other mortgages will help you increase your net worth, all while you're living in your investment!
Source
Harvard Study on Net Worth of Homeowners Vs. Renters
About the Author
Jonathan Haeber is a marketing writer for Discovery Channel Stores. He owns a condo in the San Francisco Bay Area.
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