Will Your Home Purchase Help You Build Wealth — or Is It a Big Mistake? – The Motley Fool

Homeownership can help you increase your net worth over time. According to U.S. census data, home equity and retirement accounts combined made up more than 60% of a typical household’s wealth. And those who owned rather than rented had a median net worth more than 80 times greater than the median for renters.

Now, some of the disparity can likely be attributed to the fact people are more likely to buy property if their financial life is already more secure. That’s because a stable job and good credit are prerequisites for purchasing.

Yet that doesn’t mean buying a home is the right choice for everyone — or even that all homeowners will end up better off financially. Whether buying a property helps you build wealth or turns out to be a big mistake depends on several factors, including the following key issues. 

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1. Are you financially ready for homeownership?

Buying a house when you aren’t in a good financial position is unlikely to improve your situation and, in fact, could worsen things considerably.

Ownership comes with a host of expenses beyond just your mortgage, including maintenance and upkeep, repairs, property taxes, insurance, and in some cases association fees. If you can’t afford these expenses, or if paying your monthly housing costs prevents you from doing other important things, including repaying high-interest debt, saving for retirement, or building an emergency fund, you could end up struggling to increase wealth over time.

Even worse, if you buy a home but become unable to make the payments because your income falls and you have no financial cushion, you could face foreclosure. This is a hugely expensive ordeal that will leave your credit in bad shape and your financial life in dire straits.

You don’t want to take a chance of this happening, so it’s critical to have a stable job and several months of emergency money saved before making your purchase. 

2. Did you buy the right property?

The specific details of the property you buy also will have on impact on whether homeownership helps you build wealth. If you purchase a home that’s not worth nearly what you paid for it or that doesn’t hold its value, you could end up owing more than it’s worth. This hurts, rather than helps, your wealth-building efforts.

To make sure you don’t end up in a home that’s considered a lemon in the real estate world, work with a real estate agent who can provide insight into your purchase. Compare the property’s price to comparable homes and pay attention to issues affecting resale value, such as the school district or whether any zoning changes are imminent. </…….

Source: https://www.fool.com/investing/2022/03/22/will-your-home-purchase-help-you-build-wealth-or-i/