Homeownership is the number one method of building lifetime and generational wealth—or is it? In today’s world, it is entirely possible to buy a home, pay it off, and have little to show for it in retirement. Unexpected expenses like health care ($395,000), elder care (average $9555 a month!), and end of life care can wash away everything you built like a sand castle at high tide. 

Is there anything to be done to keep what you build? Like a home, your future wealth must be built on a solid foundation. If the foundation is shaky or cracked, the slightest tremor is likely to bring it all down. 

Before you buy a home, take these five steps to lay your foundation.

• Clean up your credit. Your interest rate, how much money you will need to put down and set aside for reserves, and what programs you qualify for will all be determined or influenced by your credit score. Though you could possibly qualify for an FHA loan with a score in the low 500s, for instance, you would have to put 10% down, show significant reserves (savings), and you would be locked into mortgage insurance for eleven years or until you could afford to refinance. You can save tens of thousands on monthly payments and interest over time by getting your score up.
• Pay down or better yet, pay off your debt. Debt is like a room full of bunnies—it multiplies when you are not looking. Worse, it becomes a lifelong habit. First you finance that truck, then you get hit with an expense you can’t cover in cash, then you see something in the store you just can’t live without… When the debt is out of control and you can’t make the payments anymore, the first thing people, and your lender, is to tap into the equity in your home to pay it off. This is a good thing, a necessary thing in case of emergency, but can get to be a habit. And each time you tap the equity in your home, you are trading your wealth for more debt. 
• Change your spending habits. Financing a truck with a payment that matches your monthly rent, enrolling in subscriptions you don’t use and buying two of everything will lock you out of the home of your dreams, and eat into cash you could put towards the principal to own your home in twenty years instead of thirty.
• Build savings. This is how you avoid debt, and it is the natural result of changing your spending habits. 
• Contribute to your retirement accounts. The more money you head into retirement with, the better. Your retirement account is what will offset the expenses you will incur so you don’t have to tap the equity in your home. 

Interested in figuring out a good budget, need help setting up a plan to get into a home or have questions? Speak with one of our Real Estate Specialist by call/text us at 503.588.0211 or email mortgage@ourgrovecu.com.

Written by Elena Christian