- I bought my first (and possibly last) home a bit late in life, at 41.
- My housing costs have remained virtually stable, which has helped me establish financial stability.
- Home ownership also allows me to approach retirement with more confidence.
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Buying a home is a rite of passage for many Americans, but I kept putting it off until San Francisco spat me out. In 2004 the owner of the two Victorian apartments where my wife and I had lived for almost 10 years decided to sell the property.
We offered to buy it for $500,000, but he turned us down and then sold it for $800,000. So we had to find new accommodation.
The rent in our neighborhood, the Castro, at the time was triple the $900 rent we paid each month. That, plus a real estate investment boom and the fact that I had already turned 40, made it feel like the right time to buy a house – or maybe our last chance. .
Buy on a wing and a prayer
The housing market in 2004 was booming, and I feared that we would be locked out of the market forever if we failed to buy quickly.
We had a few personal hurdles – the first being that we had almost no money set aside for a down payment. I was also a freelance artist, so I didn’t have a guaranteed income, and neither my wife nor I had high incomes. I had also given up on credit cards and had no established credit score because of it.
That said, we were able to put together a deposit by asking our families to contribute. Additionally, it was the heyday of subprime mortgages that required little or no money and sometimes did not require income verification. I also reopened a credit card that I had closed, which established a credit score that I need to show lenders.
We found a small condo in a cohousing subdivision, where our fit for the community was more important to the seller than our credit scores or the amount of money we could set aside.
Our meager income allowed us to qualify for a homeownership program which made the mortgage more manageable. And we landed a subprime mortgage that got us through our first two years of homeownership.
At first, paying a mortgage was difficult, but over time my wife and I became much more financially stable due to home ownership for five reasons.
1. We build equity
Our first mortgage was interest only for two years, and we weren’t allowed to refinance until the two years were up, so we didn’t build up equity initially. The amount we owed was daunting, and the prospect of paying off a mortgage until I was at least 71 was frightening.
However, getting a better mortgage wasn’t difficult once we had two years of regular mortgage payments to show a lender.
Of course, each refinance for a new 30-year mortgage pushed the repayment date further into my 70s and left me wondering if I would ever be able to afford to retire. the average age to buy a first house in 2004 was 33.5, so buying in my 40s felt like a catch-up game that I might be destined to lose.
However, as interest rates fell and our equity increased, we were able to move to a 20-year mortgage and make additional principal payments. This should align the payment date more closely with a reasonable retirement age.
2. Renting is not cheaper and the value of our house increases over time
I did a rough calculation of our cost of ownership versus rent over the past 18 years, and the numbers are about even. The average rent in Oakland today, according to RentCafe, is $2,918. In Berkeley, the average is $3,196 and in San Francisco it is $3,244. Our mortgage payments are well below these rental costs and, unlike rental prices, they will not increase.
Also, while the costs of renting versus owning are about the same (so far), the value of the house has gone up. So, we acquired the equity in our home by paying roughly the same amount that would have gone to rent.
3. Home ownership creates great credit
Home ownership and having a mortgage are great ways to build better credit without racking up credit card debt.
I was able to give up my credit cards again after buying our house, and now I have good credit with no revolving debt.
4. Home ownership will make retirement easier
We may not finish paying the mortgage until I am about 70 because we bought it late in life. But, when we pay it back, our housing expenses will only be HOA dues, home insurance, and property taxes. Our total payments in 2034 probably won’t be much higher than our rent in 2004.
Because of this, our predictable housing costs have made it easier for me to plan and save for my retirement. I like knowing that if we ever decide to move, we could use the equity in our condo for the down payment, so even if we buy another house, the costs will probably still be manageable.
5. It allowed us to take business risks and earn more
Today, our household income is about four times what it was when we bought our house, and I attribute a lot of that to the stability and security of our living situation.
A mortgage is a big responsibility, and my desire to keep up with payments has made me take my career more seriously. This led me to better paying jobs, which allowed me to save more and build up my financial reserves.
Having a stable place to live has helped my wife and I achieve our dreams. She was able to get an advanced degree that qualified her for her dream job, and I was able to take a risk and start a business as a freelance writer. Knowing that we could afford periods when either of us earned less without fear of rent increases made those choices easier.