How to get ready to buy your Dream Home. Via FinancialPlannerLA.com
This is what I call Boot camp for Home Buyers
With interest rates near records lows, and housing prices on the rise, interest in the housing market seems to be heating up again. Financial Planner David Rae walks you through some tips to help you make a sound home purchase.
Let me give you brief overview of what I call, “Boot camp for Smart Homebuyers.” Without knowing anything about your situation, I can’t tell if right now is the perfect time for you to buy a piece of real estate. But I can offer you a few tips to help make a sound financial decisions, and most importantly help you not feel trapped in a house you can’t truly afford.
Regardless of your income, savings or savings habits, everyone considering buying a place should consider these next few steps.
First, get an idea of what a house/condo where you would like to live would cost. You can search on sites like ziprealty.com by location to get a feel what your ideal place will cost. Do you want to live in the Gayborhood? How much space do you need? How many bedrooms/bathrooms would you need/want?
Before moving any further ask yourself a few questions: “How is my credit?”, “Do I have a reliable income?”, “Where is the down payment going to come from?” “What am I willing to give up to make my mortgage payment?”
For some mortgages, you may need to make a 20% down payment. You can easily spend another 6% on closing costs, and other expenses that come with moving and buying a home. A simple rule of thumb is for the payment on your home/rental/house to be around 25% or less of you income. You can use sites like mortgagecalculator.com to estimate what you payment would be. (although you may be able to qualify for a loan at 43% of your income or even higher, can you really afford that?) You enter purchase price, take off the down payment, while estimating the property taxes. You may or may not be surprised by the cost of what you want to buy. Get Pre-approved so you have idea of size loan you may qualify for.
Next step is to figure out the difference between what the mortgage payment (plus home-owners association, home insurance, property taxes), and what you are paying on your current home. You should consider saving the difference between your current payment and new payment, for at least six months to help decide if you can adequately cover the new higher housing expenses. If you are having trouble doing this, what are you willing to give up to make the new mortgage payments? Are you willing to cut back on travel? Going out? Dinners with friends? Is this too much to give up? If so, you may need to find a cheaper property, or save for a larger down payment.
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Beyond the down payment, you should have 6-9 months of payments in reserves. Life happens and closing on real estate, and moving are expensive. I rarely see someone move into a new property and not have to “update, change, fix” something no matter how nice the property is. Remember, when you own a property you are responsible for the fixes. You also may get a sticker shock if moving from a rental to a house, which may have an inflated electric bill, as well as new bills for water and waste services for example.
While I will admit these steps aren’t as exciting as running out and buying a property right away. They can help you avoid some of the pitfalls home buyers succumbed to during the recent housing crisis. Making sure you can afford the housing payments, have money to pay for repairs, and weather fluctuations in housing prices, will help you avoid falling behind on other bills. Some unprepared homeowners ended up in short-sales, or foreclosures over the past few years. Not to mention those who have racked up credit card debt levels that continue to spiral out of control.
Check back for future help on tips to get that 20% down payment together. In the mean time check out the steps above to put yourself on track to make a sound financial decision when purchasing you next property. As a final parting gift, you may get a nice tax deduction for your mortgage interest and property taxes, which could help make that dream home just a touch closer to being in your budget. If you need further help with any of these steps work with a Certified Financial Planner to get more specific strategies to your individual circumstances.
David Rae on ABC Nightline with Nick Watts
DAVID RAE, CFP® is a retirement planning specialist with Trilogy Financial Services, specializing in the needs of the LGBT community. Follow him on Twitter @davidraecfp or via his website, www.davidraefp.com. or subscribe to his blog at www.financialplannerla.com
Boot Camp for Smart Home Buyers- Get Yourself Ready NOW! Originally Published on the Financial Planner LA Blog.
Advisory Services provided by Trilogy Capital Inc, a Registered Investment Adviser. Separate advisory and securities services may be provided by National Planning Corporation (NPC), a SEC Registered Investment Adviser and broker-dealer. Member FINRA and SIPC. Trilogy Capital, Inc and Trilogy Financial are affiliated by common ownership and are separate and unrelated to NPC. Please consult with your representative to confirm which company’s behalf services are being provided. The opinions voiced in this article are for general information only.