Tip 8: Don't be Afraid to Loan Money to Buy a Home

Most people dream of one day owning a home, as owning one can give you a lot of financial freedom; however the recent economic crisis has result in a lot of people running into trouble with their mortgages. This has scared a lot of other people out of buying a house. There is no reason to be afraid to borrow money to buy a home, you just need to be smart about it and buy a home that you can actually afford.

A lot of people will avoid taking out a loan in order to buy a home because they are afraid of debt. However it is important that you realize that there is such a thing as good debt. You need to be able to tell the difference between good debt and bad debt. Good debt is when the money that you borrow is being used to increase your net worth. Basically this will apply when you are borrowing money to buy an asset that will increase in value. A mortgage is the classic example of good debt so it is often a good idea to borrow money to buy a home.

One of the other reasons that it is usually a good idea to borrow money to buy a house is that a mortgage is probably the lowest interest loan that you will ever have. That means that you will be able to use the equity in your home as a cheap way to borrow money. If you want to buy a new car for example rather than taking the very high interest rates offered by the car dealer you can use a home equity loan to borrow money and buy the car with that money. This is something that you wouldn't be able to do if you hadn't taken the mortgage.

It is important to remember that your home is an asset if you own it. Not only can use the equity in it as a cheap way to borrow money but you can even use it as a retirement fund. A reverse mortgage will allow you to use the equity in the house to pay for your retirement while still allowing you to live in the home. Owning a home gives you a lot of options.

Notwithstanding all of the above you do need to think about whether buying a house is a good idea. In the past this used to be a given but things have changed. These days the cost of buying a home has risen very rapidly while the cost of renting has remained fairly low. In many situations it will make more sense to rent and then to invest the difference between what you are paying in rent and what you would pay for a mortgage. Often this will result in higher returns on your investment than owning a house. That doesn't necessarily mean that you shouldn't buy a house, just that you do need to think about all of the options.