The FIRE Movement

How Buying a Home Fits in the FIRE Movement

Search the internet, and you see countless stories of people in their 30s, 40s, and in some extreme cases, their 20s, retiring early to live life on their own terms. It’s all part of the FIRE movement, which seems to grow increasingly popular by the day.

What is the FIRE movement?

FIRE stands for Financial Independence, Retire Early, and it basically means reaching a point when you’re no longer reliant on a traditional paycheck. To be clear, people who embrace the FIRE movement aren’t necessarily poor. Quite the contrary — a lot of people who retire in their 30s or 40s do so with quite a large sum of money. 

It’s also common for participants in the FIRE movement to have passive income streams. For example, some people who retire early use the proceeds from their investment accounts to fund their lifestyles. Others own income properties and collect enough rent to cover their mortgage costs and allow for a solid paycheck that enables travel or spending their days pursuing hobbies or other leisure activities. And finally, some have non-traditional jobs — for example, they maintain blogs and earn money through advertising revenue.

Does buying a home fit into the FIRE movement?

A lot of people who want to retire early live extremely frugally and save as much as possible for many years, until they’ve amassed enough wealth to call it quits. But it’s possible to do that and still own a home.

Often, you read about early retirees who sell a home (or never buy one in the first place) and live in an RV instead. But if you’re interested in owning a home, you can — while you also achieve financial independence at a relatively young age.

You may wonder, “How is that possible?” After all, if you’re tethered to a mortgage, it’s harder to attain financial independence. But that idea involves a few assumptions — first, that you buy a home that’s a financial stretch for you, and second, that you pay off your mortgage over three decades or longer.

Let’s hash out each point a bit more. If you buy a home that’s a stretch financially, then yes, you probably will end up paying your mortgage for many years, and you may have to postpone your early retirement if you’re paying your lender so much you barely have any leftover to save and invest for the future. But if you buy a modest home — one you can afford with ease while saving a bundle month after month — that home doesn’t have to impede your plans at all.

Now to the second point. While it’s common to sign a 30-year mortgage and pay off a home over those 360 months, you can take out a loan with a much shorter repayment period. In fact, if you buy a home in your 20s with a 15-year mortgage, you could be mortgage-free by your late 30s. And at that point, you might own an asset that’s not only appreciated in value, but can also serve as an income stream when you’re not using it. (If you plan to take extended trips as an early retiree, you can rent out your home short-term when you aren’t living there yourself.)

Along the same lines, you could also sign a 30-year mortgage, but pump extra money into it to knock it out early. That may be smart if you don’t want to commit to the higher monthly payments that come with a 15-year loan — though it is worth noting that you generally get a much more competitive interest rate on a 15-year loan than on a 30-year, so if a shorter-term loan is an option, it’s often worth signing.

Is now a good time to buy a home?

Right now is a great time to sell a home, but buying may prove challenging. Though mortgage rates sit near record lows, housing inventory is extremely limited and has been for months. Not only does that mean there’s less to choose from, but it also means buyer demand is high, resulting in extremely inflated home prices nationwide.

Today may not be the best time to buy a home — even if your credit score is such that you qualify for a great interest rate on a mortgage. To buy today, you could have to stretch your budget and get stuck with a higher mortgage payment than you’d like. A better bet is probably to give the housing market a little time to open up. As things improve with the pandemic and the U.S. economy recovers, inventory is apt to pick up, at which point you may have an easier time buying a budget-friendly place to call your own. 

You can have the best of both worlds

Being saddled with a mortgage could prevent you from achieving financial independence early and retiring ahead of your peers. But buying a home doesn’t have to mean getting stuck with a hefty mortgage payment that takes three decades to shed. If you buy a modest home and sign a 15-year mortgage, you might get the best of both worlds — the stability of your own place and the ability to leave the workforce once that home is paid off.

By Maurie Backman

Maurie Backman is a personal finance expert at The Ascent, a personal finance service by The Motley Fool. She is a firm believer in discussing personal finance topics without boring readers and especially loves educating them on budgeting, saving, and investing.

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