You’re thinking of getting a home someday. After seeing the current housing situation, you decide to be prepared for a home. How much house should you get? How much of a down payment are you going to need? What other expenses do you have to plan for?
There are many different opinions on how much house you can afford. The general consensus seems to be 2-3x your annual salary. Even if banks may suggest you can afford more, be careful. Look at your circumstances.
Do you have a high amount of debt? Considering pausing on buying a home and get that reduced as there are many other expenses included with purchasing a home (see below). It’s good to anticipate your financial needs ahead of time. Wat will bills be like after you purchase a home? Ask family and friends to get an idea.
How you can use Zillow to figure out a down payment.
Locate the city you want to live in. If you’re living in New York City or San Francisco, expect to need a HUGE down payment. Hopefully you income is also higher and can help you build your down payment. Use Zillow to locate affordable neighborhoods in the city and state you’re interested in.
Find the areas in the city with home you like. Within cities there are areas that have developed their own ‘personalities’. See for yourself if it’s the right area for you. Go there during different times and days. If you’re a couple looking to start a family, you may not enjoy an area with a loud and active nightlife.
I also like to look at the Zestimate. It can give you an idea if the asking price is reasonable. Select a couple of homes you would love to live in and determine the average price. Use this for your down payment fund estimate.
Aim for a down payment between 10-20% the ‘dream home’. The advantage of this is that it will reduce your mortgage payment.
Stash your down payment fund in a high yield savings account. Speed along your savings by opening an account with banks with high interest savings like ING Direct, HSBC, Emigrant Direct, WaMu, and many others.
Remember there are other costs in buying a home (provided by Zillow). Try to include some buffer money for them. Also check the requirements for your state, as it can vary and you may have additional responsibilities.
- Credit Report
- Closing Fee
- Title Search
- Homeowners’ Insurance
- Escrow Deposit for Property Taxes & Mortgage Insurance
- Transfer Taxes
- Recording Fees
- Processing Fee
- Underwriting Fee
- Loan Discount Points
- Pre-Paid Interest
- Property Tax
- Pest Inspection
Buying a home can be a great experience, but it can also be a nightmare. If you’re not in a position to buy a home, don’t worry. Rent can be a wise choice for many people. Don’t be impatient; wait for the right time.
Great Thoughts on Topic
Do you have more questions about getting a home and the basics of real estate? Here are some great articles I found on the web:
- So you want to buy a house…. @ Gather Little By Little
- The Continuing Saga of the First Time Home Buyer (That’s Me) @ Being Frugal
- 11 Tips for First-Time Homebuyers @ Get Rich Slowly
- The Real Scoop on Real Estate @ I Will Teach You To Be Rich
Photo Credit: by james.thompson