According to a study done by Gallup.com, between renters and homeowners, the former admits to feeling a higher level of stress in their finances. In a survey conducted on 5,000 respondents over a course of more than 3 years (2013 to 2016), it is revealed that 49% of renters worry about their home payments. This is 24 points more than the 25% of homeowners who have admitted being in the same predicament.
This is an indication that people who own homes are more likely to be in a more stable financial situation. After all, if you are unemployed or relying on an irregular salary, you would not think about buying a house. It is too big of a financial decision. And no mortgage lender will approve your loan if they see that you are not in a strong financial position.
Homeowners are more confident with their personal finances and are less likely to feel stressed about their money. Although they are paying for their house (since most homes are bought through a mortgage), they are prepared to take on that financial burden. The pressure is not as bad because they are more motivated to meet payments. They are paying for something that they own. This makes the sacrifices more bearable and they do not add to any stress that you feel towards your finances.
3 ways a house can help relieve money stress
There are actually three ways that your house help ease your financial stress.
Your monthly payment goes to your equity.
If you are choosing between renting or buying a house, there is one truth that will sway you towards the latter. When you rent, the monthly payment that comes out of your pocket makes your landlord rich. When you buy your own house, even if it is done through a mortgage, every payment goes to the equity of your property. The equity is the value of the house that you own. For instance, you bought a house for $500,000. You paid $100,000 as your down payment and you borrowed $400,000 from the bank. In the beginning, the equity that you have in your house is only $100,000. As the months go on, that equity will grow – as long as you are diligent about paying your monthly amortization. The more you pay, the higher the equity. When you are paying rent and you know that the money goes to the pocket of your landlord, you feel less enthusiastic about making payments. But if you know that your monthly home payments go to your own equity, it feels less of a burden and will not fuel your financial stress.
Increases your net worth.
As the equity of your house increases, you will your personal net worth. Since the equity refers to the value of the house that you own, that can be considered as part of your assets. Every time you make a payment, you have to think about it as another contribution towards your net worth. As your worth increases, you will feel less financial stress because you know that you are making your finances more stable. You know that you have a sound investment in your house – in case something goes wrong with your finances.
Creates a financial back-up plan in case of extreme need.
Finally, your house can help you overcome money stress because it can be a financial back-up plan. You can use the equity in your house to borrow money so you have the cash on hand for expenses. For instance, you can use it to get a HELOC or Home Equity Line Of Credit. This is a type of revolving debt that you can use when you need credit. According to an article published on Forbes.com, this type of loan is used by homeowners for debt consolidation, home improvements, educational requirements, and even as an emergency line of credit. Since this is borrowed using your house as collateral, you can expect a low-interest rate. When something needs to be fixed in the house or you ran out of emergency money, you can rely on this to get you through tight spots. That assurance can be a great relief for the typical financial stress that is associated with an emergency situation.
These are the three important reasons why being a homeowner can help you manage your money stress better. Of course, this is only true if you can continuously pay your mortgage contributions without delay.
Tips to help make home buying a sound investment
While it is evident that buying a house will help ease any money stress that you are feeling, this is not a financial transaction that you should take lightly. This is one of the biggest expense that you will make. You have to make sure that you approach it with a plan. It is important to maximize the financial benefit of owning a house so you can successfully use it to strengthen your financial position.
Here are some tips that will help you be a smart homebuyer.
Buy based on what is necessary.
Some people apply for a mortgage and wait for the amount that will be approved by the lender before deciding on their budget. This is not the right way to buy a house. You have to think about what you need. If there are only 4 people in the family, you only need a 3-bedroom house at the most. Do not buy a 5-bedroom house just because you were approved for a high mortgage. Remember, there are various hidden costs when buying a house. Do not exhaust your resources on a home that is too big for you. Not only will you contend with a big mortgage, you also have to think about the cost of upkeep and the utility bills. The bigger the place, the more costly it is to keep.
Try to make your house pay for itself.
The only time that it is okay to buy a house that is too big for you is when you intend to earn from it. Having one extra room and renting it out can help you pay for the monthly amortization of the house. This additional income can help manage the financial stress that you can feel when it comes to keeping up with mortgage payments. According to AccessoryDwellings.org, potential rental income is one of the reasons why people opted to have an extra room, basement or garage converted into a separate and smaller living space. Not only will this help pay for the monthly mortgage, it can also help put some extra cash in your pocket.
Save as much down payment as you can.
Finally, try to save as much down payment as you can before you buy a house. This will help lower the financial stress that you might feel in paying it back. The bigger the down payment, the less you have to borrow in your home loan. When you borrow less money, you can probably choose a shorter loan term. There are two benefits when you choose this path. One is you get to own 100% of your home’s equity much faster. The second benefit is paying less when it comes to the interest rate. If you borrow a huge amount, it will be harder to opt for a shorter payment term. In fact, you will be forced to lengthen your term so you get to make smaller monthly contributions. But if your loan is small to begin with because you have a bigger down payment, then you can easily choose a short repayment plan so you can get out of debt faster.