NewBuyer Weblog

Are you Ready to Buy a Home?

Posted by Elizabeth Dennis on June 21, 2010 | 1 Comment

There is a great chance that buying a home will be the largest item you will purchase within your lifetime.  It is extremely important to consider the matter carefully before making the decision to become a homeowner.  Ask yourself these questions:

• Do you take in enough income to cover the cost of owning a home?
  It is not just the monthly payments you need to consider.  The other costs involved with the purchase of a home include:
  • Origination fee
  • Inspection fees
  • Survey
  • Appraisal
  • Credit report fee
  • Tax services fees
  • Attorney’s fees
  • Title insurance
  • Homeowners insurance
  • Taxes

In addition to the closing costs above, think about what you might spend to fix up the home and yard after you move in.

• Is your credit history in good enough shape to allow you to get a mortgage? These days it can be especially difficult to get a mortgage with bad credit.  Obtain a free credit report immediately, review it carefully, and clear up any problems before you begin the mortgage application process.
• Do you have enough cash to cover the down payment on the home as well as the closing costs we discussed above?
  Ideally, you will want to put down as much as 20% of the purchase price for the home.  While, some buyers can get away with putting down less, often times the mortgage fees and higher interest rates that come along with a low down payment will outweigh the benefits.
• Are you mature enough to take on the responsibility of owning your own home?
  As exciting as it can be to move into your own place, you will also be your own landlord and will need to take care of your own repairs and maintenance, or find the money to hire somebody to take care of them for you.
• How long do you plan to stay in your new home?
  A good rule of thumb is to not buy a home if you plan to live there for less than two years.   There are very few areas that appreciate fast enough to cover the fees that are involved in the purchase of the house.

By answering these questions honestly and thoroughly, you’ll know if you are truly ready to buy your first house.

Other People’s Money

Posted by Elizabeth Dennis on June 18, 2010 | No Comments

OPM or “Other People’s Money” is a financial term describing the situation when you use other people’s money to make money.   Taking out a mortgage to invest in a home is a perfect example. When you buy a home with a mortgage it is not actually your money you are investing.  You only invest the down payment and are using a loan to invest in the rest of it.

For example, if you buy a home for $100,000 with a down payment (investment) of $20,000 and the value of the home then increases to $140,000, you can sell your home and make $40,000 from your $20,000 investment.  Although you will most likely use a chunk of that for the fees to sell your home, you can see how using other people’s money can be a great way to invest.

Budgeting for Homeownership

Posted by Elizabeth Dennis on June 14, 2010 | No Comments

As we have seen in our prior post, Are you a Responsible First Time Home Buyer?, mortgage lenders will often offer you more than you can actually afford. Here we have provided a list of common monthly budget items for you to reference when calculating your non-housing monthly expenses. Be sure to consider:

• Groceries
• Utilities
• Telephone
• Insurance (Auto and Health)
• Medical Payments
• Car Payments
• Car Maintenance and Repair
• Public Transportation
• Alimony
• Child Support
• Children’s Expenses (Clothing, Activities, School)
• Childcare
• Dining Out
• Entertainment
• Big-Ticket Items (Furniture, Electronics, etc.)
• Vacations
• Hobbies
• Memberships
• Charitable Donations
• Savings
• Gift Giving
• Miscellaneous
• Add 5% for Items Overlooked or Unexpected Expenses

For budgeting on a monthly basis, it is a good idea to break down these categories into sub-categories. But for purposes of getting an accurate home affordability picture, using the above numbers will put you on the right track toward responsible homeownership.