Real Estate has helped thousands of American families achieve wealth, and we believe that you can too. Using this four-step process, we know that you can create the wealth and freedom that you deserve.
Step One: Pay Off High-Interest Debt
Building wealth happens one step at a time. The first step is to pay off what we refer to as “bad debt.” Bad debt describes the type of debt that is tied to a liability. This can be car loans, credit cards, or personal loans. Often this debt comes with high-interest rates and offers an “enticing reward point system with a low minimum payment.”
This debt costs you much more than it is worth. Your first goal should be to eliminate these debts permanently. If this debt is too large to budget payments for, consider using a home refinance to consolidate this debt into your home loan. The interest payment could be much lower and will be tied to an asset that increases in value.
Step Two: Build An Emergency Fund
The next step in building wealth is to build your emergency fund. Life happens, and if you aren’t prepared, you could be put in a situation where you need to rely on expensive credit to survive. This isn’t ideal because it pushes you back to step one and traps you in a cycle where you always pay back creditors.
While it may be tempting to skip to step three, make sure you build an emergency fund. This should be 3-6 months’ worth of monthly income in a savings account. This is not to be touched unless it truly is an emergency.
Step Three: Save For Your Initial Investment
We like to refer to your down payment and closing costs as your initial investment. This is money you will need to put in up front to watch your money grow. Lack of down payment is one of the most common reasons families don’t buy a home. However, depending on the circumstance, you have many options available that are low to no down payment.
These low to no down payment options may have higher monthly payments but getting into the market early and tapping into market growth is key to getting a return on your investment.
Step Four: Using Equity To Buy Rental Properties Or Invest
After you have owned your home for a few years, you will experience growth in your equity. This is due to you paying down the principal of your mortgage and increasing home prices in your area. The downside to this equity is that you cannot use it without selling or refinancing the home.
Depending on your financial situation and how much you put down on your home initially will determine how you move forward. Our clients tend to pick between one of three options:
Option one is where you pull the equity from your home using a cash-out refinance. You can take this extra cash and use it to put down payments on rental properties. These rental properties will serve as income-generating assets and help you build somewhat “passive income.”
Rate & Term Refinance
Option two is where you leave the home’s equity but refinance for a better rate, drop MI, or change loan programs. These types of refinancing usually free up monthly cash flow to invest in things that have a more aggressive return on investment, such as stocks.
Sell & Move Up
The final option is to sell your home and move into a bigger/better home. This extra equity can offset the larger house, and you could potentially live in this home similar to your current mortgage payment. All families require their unique financial plan, and the earlier you begin planning, the better.
If you are curious about the mortgage process, click here and schedule a time to speak with our licensed home loan experts.