33 min
First Time Home Buyer Advice – Key Info to Know: Podcast 94 The Post Money Plan
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In this week’s podcast we provide advice for a would-be first time home buyer.
*This episode is part of my summer re-run series of popular episodes*
How to decide whether to buy or rent:
* Duration
* The longer you plan to live in the same place, the more it makes sense to own it
* The shorter you plan to live in a place, the less it makes sense to own it
* Costs
* Compare apples to apples between an owning choice and a rental choice
* Compare only money that is being “thrown down the drain”
* Remember that principal payments when owning are not “down the drain” –> those you are trading for more ownership (equity) in your home
Things to consider in buying a home as a first time home buyer:
* Plan as much for the long term as possible, but be aware things can change
* It’s unrealistic for your first home to be your dream home
* The purchase price you agree to ≠ actual total cost you’ll pay –> you also have to account for closing costs and fees
* Lower monthly payment ≠ lower cost –> you may end up with a higher interest rate and paying more in interest and have less cash to show for it in the end
* Recurring home ownership costs
* Principal
* Interest
* PMI if down payment 20%
* Home owner’s insurance
* Property taxes
* HOA fees
* Repairs
* Keep your debt/income ratio well under 33% when considering the amount of mortgage to take on
* Keep a financial margin of safety and err on the side of conservatism when taking on a mortgage
* When you buy, you become responsible for all the repairs and maintenance (and to pay for it!)
* As a renter, you can just call your landlord and have them fix and pay for maintenance
* Old appliances and equipment that need to be replaced can cost a lot of unexpected money
* Full inspections are valuable and can tell you about problems
* A fixer-upper may take more investment and effort than you expected
* If you have or are going to have kids, the school district where the house is is important
* Ask as many questions as you can before buying
Process to follow as a first time home buyer:
* Define your lifestyle, what you want in a house, and your budget
* Wants: determine your time-horizon, location, size, quality, convenience, cost, etc.
* Consider all of the costs that go into buying a house
* Mortgage down-payment
* Mortgage principal payments
* Mortgage interest payments
* Private Mortgage Insurance (PMI) premiums if down-payment is less than 20%
* Home Owners Association (HOA) fees
* Property taxes
* Home owner’s insurance premiums
* Repairs if stuff is old or broken
* House price budget: make your mortgage payment/income ratio much lower than 33% (ex. $3,000/month income à monthly mortgage payment needs to be less than $1,000/month)
* Down-payment amount: Put down as much as possible without straining immediate needs (keep 6 months of living expenses in savings)
* Keep your expectations in check
* Qualify for a loan
* Approach a lender by reaching out to a bank or lending company
* Provide personal information documentation
* Pay stubs
* Tax returns
* Bank statements
* Rental history
* Net Worth calculation
* Get pre-approved for a mortgage loan
* Be careful, remember the bank is not your friend, they’re trying to make money off of you
* Shop around for houses
* Use real estate websites like a href="http://www.zillow.
In this week’s podcast we provide advice for a would-be first time home buyer.
*This episode is part of my summer re-run series of popular episodes*
How to decide whether to buy or rent:
* Duration
* The longer you plan to live in the same place, the more it makes sense to own it
* The shorter you plan to live in a place, the less it makes sense to own it
* Costs
* Compare apples to apples between an owning choice and a rental choice
* Compare only money that is being “thrown down the drain”
* Remember that principal payments when owning are not “down the drain” –> those you are trading for more ownership (equity) in your home
Things to consider in buying a home as a first time home buyer:
* Plan as much for the long term as possible, but be aware things can change
* It’s unrealistic for your first home to be your dream home
* The purchase price you agree to ≠ actual total cost you’ll pay –> you also have to account for closing costs and fees
* Lower monthly payment ≠ lower cost –> you may end up with a higher interest rate and paying more in interest and have less cash to show for it in the end
* Recurring home ownership costs
* Principal
* Interest
* PMI if down payment 20%
* Home owner’s insurance
* Property taxes
* HOA fees
* Repairs
* Keep your debt/income ratio well under 33% when considering the amount of mortgage to take on
* Keep a financial margin of safety and err on the side of conservatism when taking on a mortgage
* When you buy, you become responsible for all the repairs and maintenance (and to pay for it!)
* As a renter, you can just call your landlord and have them fix and pay for maintenance
* Old appliances and equipment that need to be replaced can cost a lot of unexpected money
* Full inspections are valuable and can tell you about problems
* A fixer-upper may take more investment and effort than you expected
* If you have or are going to have kids, the school district where the house is is important
* Ask as many questions as you can before buying
Process to follow as a first time home buyer:
* Define your lifestyle, what you want in a house, and your budget
* Wants: determine your time-horizon, location, size, quality, convenience, cost, etc.
* Consider all of the costs that go into buying a house
* Mortgage down-payment
* Mortgage principal payments
* Mortgage interest payments
* Private Mortgage Insurance (PMI) premiums if down-payment is less than 20%
* Home Owners Association (HOA) fees
* Property taxes
* Home owner’s insurance premiums
* Repairs if stuff is old or broken
* House price budget: make your mortgage payment/income ratio much lower than 33% (ex. $3,000/month income à monthly mortgage payment needs to be less than $1,000/month)
* Down-payment amount: Put down as much as possible without straining immediate needs (keep 6 months of living expenses in savings)
* Keep your expectations in check
* Qualify for a loan
* Approach a lender by reaching out to a bank or lending company
* Provide personal information documentation
* Pay stubs
* Tax returns
* Bank statements
* Rental history
* Net Worth calculation
* Get pre-approved for a mortgage loan
* Be careful, remember the bank is not your friend, they’re trying to make money off of you
* Shop around for houses
* Use real estate websites like a href="http://www.zillow.
33 min