Thinking About Buying Your First Home?
The video above is a great video that expresses how many of my first time homebuyers feel when they are finally closed & get the keys to their own home. It is a feeling that is you will get only when buying your very first home! And with interest rates low, many renters are starting to think about purchasing a home of their own. While simple rental cost vs. mortgage cost comparisons can be very attractive, buying a home is a serious commitment, and there are many factors to consider:
How long you plan to live in the home:
Selling a home costs money. Keep in mind that in the Richmond area, homes tend appreciate, in normal real estate markets, somewhere around 5% per year. So to allow the market to stabilize and to cover future selling costs & buying costs for the next home, you should plan to stay in your home at least 5 years. However, the real estate market can be volatile and swings up and down are not uncommon.
How long the home will meet your needs:
What features do you require in a home to satisfy your lifestyle now? Five years from now? Sometimes, people end up staying in their home longer than they intended to. When looking at the homes, make sure it is a home that you can not only feel comfortable in now, but can grow into it in the future. Are there spaces that could be converted into useable space - an attic that can become a bedroom? a side porch that can be converted into an office? a basement that could be converted to a playroom?
Your financial health - your credit & home affordability:
Is now really the time for you to buy a home? Is your credit good? Some people feel more comfortable buying a home that is priced less than what you can qualify for; others feel that buying as much home as they can afford will be better in the long run, because of regular pay raises & bonuses. There is no right or wrong way to buy a home - you should stay within your comfort zone! There are many costs involved in buying a home - not only with the upfront costs, but any ongoing costs (such as maintenance, association fees, etc). So how much can you afford? The rule of thumb is "28/36", meaning that your monthly housing costs cannot exceed more than 28% of your gross income and your total debt load cannot exceed 36% of your total monthly gross income. That means that if your current gross monthly income is around $4,000 per month, then your total housing costs (the mortgage with taxes and insurance) cannot exceed more than $1120 per month, which is 28% of your gross monthly income. Additionally, your total debt load (which is the mortgage payment plus any credit cards and loans that you are currently paying on) cannot exceed $1440/month. This means that if your maximum mortgage payment is $1120/month, then the total of your other monthly debt payments (credit cards, car payments, student loans) cannot exceed more than $320/month. Sometimes, if the credit is good, a lender may have some flexibility, but you should discuss this with the lender.
Where the money for the transaction will come from:
Typically, you will need to have a down payment to get into your home. There are several types of loans available: FHA will require a 3.5% down payment, while VA & Rural Development Financing will not require any down payment and a conventional loan will require a 5% down payment. If your credit is not stellar, then the lender may require a larger down payment to get a loan. Additionally, you will need money for your closing costs and the amount of the closing costs will depend upon your type of loan. Many times you may be able to negotiate with the seller to pick up some or all of your closing costs. But you should be prepared to pay some or all of your closing costs. When talking to your lender, ask your lender to give you a Good Faith Estimate showing the payment and the cash you will need to bring to the closing table.
The ongoing costs of home ownership:
When you buy a home, it is quite different than renting. When you rent an apartment and something goes wrong, all you need to do is to call the maintenance department to fix whatever goes wrong. When you own a home, you will now be responsible for the maintenance on the home. This includes making sure you have money when things need replacing as well as repairing. Additionally, you may have other costs such as insurance, association fees, etc.
If you are thinking of buying a home and have some questions, please feel free to email or call me. And if you would like to sit down and discuss the homebuying process, please don't hesitate to call or email me.