A home is offered for sale in Chicago, Ill.
A home is offered for sale in Chicago, Ill. - 
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Home ownership can be a way for low-income folks to punch a ticket to upward mobility. However, many experts recommend that low-income people build wealth in other ways before they take on a mortgage. 

“You have to be financially ready," advises Ray Boshara, director of the Center for Household Financial Responsibility at the Federal Reserve Bank of St. Louis. He suggests that before people dive into the housing market, low-income folks ask themselves a few questions, like: "Do you have sufficient savings? Are your debts at a manageable level? Are your assets somewhat diversified? "  

Boshara underscores that final point: "You want to make sure you don’t have all your assets in housing." That's a lesson from the recession. People who had most of their money tied up in home ownership, he says, are the ones who lost more of their wealth during the downturn. For younger families (those under 40), 75 percent of the wealth lost during the recession is because of home ownership. Boshara says many of them got caught up in the housing bubble, and bought a home before they were financially prepared.

Where does buying a home rank in asset building for low-income families?

Boshara says people with modest incomes should take other steps before they buy a home. 

“You want to make sure you have savings. You want to make sure your debts are at a manageable level. You want to make sure your credit score is good. And if possible save for your kid’s college,” says Boshara.

He says diversifying your assets and keeping your debt low can put you in a better position to buy a home. 

Is a home a way to build wealth or is it just a place to live?

History shows us that if your goal is to make money, then home ownership is not the best route, according to Boshara.  He points to data that shows the performance of different asset classes  since 1983.  

  • Financial assets and stocks returned 7 percent
  • Pensions returned at 4 percent
  • Business assets returned at 2 percent
  • Homes returned at 1.6 percent

Although home ownership may not be a big money maker, Boshara says  if you hold onto that asset (a home) over time, it will build equity and you may be able to use it to finance your children's education, a business startup or retirement savings.

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Follow Lizzie O'Leary at @lizzieohreally