Can You Really Afford Homeownership?
The most common misconception with those wishing to be homeowners is that it is somehow not affordable. It is very true that homeownership is a huge step. However, you may be surprised that you are more ready than you think.
Self-Evaluation
Do an honest self-evaluation. Is it a time for a change in your life? You may be in a stressful situation in your present living condition or it just may be time to live your dream by owning a home. Whatever your motive, do an honest look at whether you are truly ready to change your spending habits. Can you take on the responsibility of maintaining a house or attending condo association meetings? Being a homeowner can be stressful, but it can also be the most fulfilling step in your life. Be prepared financially and mentally. If after looking at your present lifestyle you see homeownership in your near future, you should move forward.
Be Honest About Your Money
Personal finances are obviously is the biggest factor in deciding to purchase a home. It would be most beneficial to be completely honest about your financial ability to maintain a mortgage and a property. Take the time to sit down and write down or put in a spreadsheet or budget all of the following:
Your current monthly salary
Any other monthly earnings
Monthly Rent amount
Utillity bills such as gas, electric, cable, water, phone etc
Monthly credit card bills
Monthly car, fuel and/or transportation costs
Monthly Groceries Bills
Entertainment, clothing and any other Misc. expenses you may have
How much money do you have left over? If you are struggling to make it to the next pay day, homeownership just may not be for you yet. However, if you have enough to save at least 10% of your monthly salary each month, and enough to be comfortable until your next paycheck, you are ready.
Mortgage Calculator
The best way to get a sneak peak at what the cost of homeownership will be is to use a mortgage calculator. Mortgage calculators can be found anywhere on the internet and are great ways to get an estimate of how much you might pay for a home. On the mortgage calculator referenced here, you will be asked to fill in the length of the loan, the projected cost of the home, the mortgage interest rate, the cost of insurance and taxes, your down payment amount, your monthly income and your monthly debt. Follow these steps:
Step 1: Click here to go to the mortgage calculator. (will open in a new window)
Step 2: Term in Years – 30 years – The normal loan period for a home loan is 30 years.
Step 3: Interest Rate – 6.25%
For the sake of this example, most loans such as FHA will fall at this interest rate. Your rate my be higher or lower depending on your credit and the rate your lender extends to you.
Step 4: Cost of Home – $150,000
Again this number is only being provided for the sake of example. Do your own research on the homes you like and the prices for the market in your area. Fill in that number if available.
Step 5: Down Payment – Calculate 3% of the home cost as a down payment.
Of course your down payment can be more than this. With an FHA loan, 3% is required. With other loans, you may be asked to put down more.
Step 6: Annual Insurance – Click in the box for the estimate amount
Step 7: Annual Property Tax – Click in the box for the estimate amount
Step 8: Monthly Income – Plug in your monthly income
Step 9: Monthly Debt – Plug in your monthly debt excluding and money spent on rent or existing mortgages.
Step 10: Click Calculate now
What you will see is a good estimate of how much you will pay a month on a mortgage. With this calculator, you also have the ability to determine affordability (click on the affordability tab). But you also can look a comparison of renting vs. buying do understand the difference in dollars.
Put a Temporary Hold on Homeownership
Honestly, there are factors can delay your quest for homeownership. They include:
- multiple credit accounts in collection status
- lack of job stability
- changing jobs frequently
- large amount of credit card debt
- recent bankruptcy, foreclosure or repossession
These are just a few signs that homeownership may not be for you at that moment. Don’t lose your faith. With a little patience and discipline you will reach your goal. Take this time to examine what needs to be changed in with your finances. Set goals and stick to them.
