How much house can you afford
The cost of real estate has exploded in the past few years.
Costs might decrease slightly as the interest rate continues to rise and people can no longer qualify for new mortgage loans. But that might not happen.
The last thing you want to do is buy a property and become 'house' poor. You want to purchase something that makes sense for you and your family, but also does not stress you out to make that house payment every month.
1. Do you have a fully funded emergency fund?
Before you purchase a property I would recommend that you have a fully funded emergency fund and the full property down payment saved up in cash.
2. Remember that will be paying your monthly house payment and the extra costs that come with home ownership. Taxes, HOA, maintenance
These costs can really add up if you are not careful.
Think about how much you want to pay each month for these costs.
3. 26% - 30%
This is the percent of your monthly income that should go toward your housing payment traditionally.
You can be conservative by going lower than this amount or aggressive by going above this amount.
4. How much debt do you already have?
Student loans, car loans, credit cards, personal loans, business loans. These are all debts you should consider before adding a property onto the pile of debt.
Do any of these have a variable interest rate, because that could effect how much you take home each month.
5. Go for the fixed mortgage rate not the variable
A variable rate can be tempting, but you do not know what is going to happen in the future.
Even if it is more expensive go with the fixed interest rate.
6. Can you do an FHA loan?
Look into it before going with traditional private lenders.
7. 15 or 30 year
These are the most common lengths of mortgages. 15 is more expensive, but you pay less interest.
Decide which one is better for you.
8. Are you going to be happy in that location?
A house locks you into a certain area.
Do you really want to live in that area?
9. How much down for the down payment?
This depends. You definitely want to put down enough that you do not have to pay for mortgage insurance. Generally at least 20% of the total cost.
Are you going to pay off your house early or go the full mortgage term?
If you are paying off early you want to put down as much as possible.
If you are going the full term you want to put down as little as possible.
10. Property Taxes
Are you prepared to protest these each year?
Many places have property taxes that are increased each year. The local government would like to increase these as much as possible each year to increase their local budget.
The actual property tax value is usually somewhere in the middle of what they would like to charge you and what the market will actually support.
In order to keep your tax increase increase in check you will likely need to protest the increase each year. Which requires you to do a little bit of paperwork and follow up if necessary.
11. Playing house before you actually purchase the home
Pay rent for six months plus the extra cost owning a property, put that into a savings account, to make sure you can comfortably afford making the home payment without any extra stress.
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