Harness Money

Buying a home is most people’s largest expense in their lifetime.

Before you buy that dream home, I would like you to have your emergency fund fully funded.

It may take a long time to save up that down payment for the house, I honestly never thought I would be able to afford a home, but just be patient and work on increasing your income and savings rate and you will be able to purchase that home over time.

How much house can you afford?

There is no quick answer to this question.

There are plenty of online calculators where you can plug in your numbers and see how much house you can actually afford at your income level. I like to be a little conservative with the number.

Your housing should be no more than 25% of your total monthly income.

Your minimum down payment for the house should be 20%, but I would actually recommend 25% of the total cost. This avoids extra mortgage charges.

Before you buy that dream house, consider the extra costs: HOA, maintenance, insurance, utilities, property taxes. Housing costs can quickly add up. Does the house need a lot of work or is it in good shape?

Sometimes when buying a house you may be competing against a lot of people. Never wave the inspection. It can be really tempting, but I do not recommend it. You never know what you will get yourself into.

Playing house – Suze Orman

How much house can you really afford?

You need to emotionally feel like you living in that home. For at least 6 months, pay your normal rent and then add on another $1,000 or more depending on the cost an actual mortgage, onto your rent payment. The extra goes into a separate savings account. This is the cost of the extra money you need, HOA, taxes, maintenance etc. for your future home beyond just your normal rent payment.

If this amount feels like too much of a financial burden then you are not ready to buy a house, you may need to save up more money for the downpayment.

Remember that as the federal interest rate rises so does the cost of a mortgage.

I recommend doing a fixed mortgage not variable. The federal interest rate will eventually go down and you can refinance at that time.

30 year or 15?

This depends on whether you plan to pay off your house faster or slower.

A 30 year mortgage means that you will more in interest for the home.

If you have a low interest rate you may want to stretch out the lower payments in order to have more funds to invest in the stock market.

Or

You may want a 15 year mortgage if you want to pay off your home faster. Having a paid off home offers a lot of personal security.

If you pay off a home faster you may also continue making those payments into stock market.

There are a lot of things to consider when buying a home. Talk to multiple people and get different points of view. Remember to do your homework and consider all the costs associated with purchasing and maintaining your property.

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