Home Buying Series, Part 1
Springtime is home buying season for many. Owning a home is still the epitome of the American dream, but it can also turn disastrous if you’re not careful. Here are a few tips from The MoneyEvolution Guide to Buying and Financing your Home, a Free Downloadable PDF you can find on our Resource Page HERE.
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Springtime is a very common time for people to get out and do some house-hunting. Maybe that’s a situation that you might be in, maybe you’re looking to buy a new house, maybe you’re looking to buy a house for the first time, or maybe upgrade or downsize the house that you have. So what I thought I would do is come out and talk a little bit about some of my tips that I want to share with you for making your home-buying purchase a little bit more successful.
First of all, if you haven’t already, go to our website, MoneyEvolution.com. We have a free guide that I put together there, it’s the Money Evolution guide to buying and financing your home, and this has got all of my best tips and information in it here. Check that out, go over, put your email address in, we’ll email that out to you.
When buying a house, one of the most important things that you can do is obviously know your price range. So if you just start aimlessly going out, looking at houses, it can get very frustrating, so you want to know precisely what price range of house you’re typically looking for. And there’s a couple of rules of thumb that I’d like to point out.
First of all, some lenders will actually lend you up to 28% of your monthly gross income for a total housing expense, so that’s your principal and interest payment plus your taxes, plus your insurance. 28% in my opinion’s a little bit high. I think your housing can very easily kill your budget if you’re not careful, so I like to keep that number actually down to around 20 to 25% at the most that is of your gross monthly income. You also want to be very careful to not get too carried away including any extra parts of your salary, like bonuses or commissions, and you want to be very conservative with those numbers because bonuses, commissions, overtime, that stuff can dry up and again, that’s something that can very easily lead to your budget blowing up.
The other important factor when buying a house is make sure you have at least enough to put your 20% down payment down. Again, if you don’t put 20% down, you’re going to have to pay things like PMI which is private mortgage insurance, that can get very expensive. In fact, in the guide, I actually walk through a hypothetical example and show you that that PMI, that extra financing principal can actually cost you as much as13% interest. So, always put 20% down. And if you’re not quite at that level, maybe it’s just a better situation for you to hold off on buying that house and maybe renting a little bit more to get yourself in a better cash position.
Another thing too is you want to make sure that you have some cash reserves when you’re buying a house. Any house that you buy is going to have some expenses coming up. You obviously have got moving expenses, you may have some transfer taxes if you’re selling an existing house. I know we have that here in Michigan. You may want to buy some new furniture, do a little bit of remodeling, maybe some paint and carpeting. So you want to have that money in the bank. You don’t want to go into a house where you’ve scraped everything together just for your down payment, and have to start putting these other expenses on credit cards. Again, that’s a very quick and easy way to blow up your budget.
And the final recommendation that I have when buying a house is if you have an existing house, please sell your existing house first before you put a firm offer on a new house, because if you get stuck with two house payments, that could really ruin your financial position. You can put an offer contingent on selling your existing house and some people will accept that so it gives you a little bit of a buffer. And if you don’t sell your house, you can always back out of that offer as a contingency plan. But going into that without a contingency and potentially being stuck with two houses can be a big mistake.
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