How much home can you really afford? Employment , savings, down payment, and spending habits, are all factors that come into play.
Here is a list of items to consider before buying a home.
1. Employment: Have you just switched jobs or is your company experiencing layoffs? In times of economic uncertainty, you may find it best to stay put. This is why many economic analysts say that a housing recovery is dependent on lower unemployment. When unemployment drops housing will benefit.
2. Savings: According to a recent study the average family in the United States has $117,951 worth of debt and only $3,800 in savings. 25% of Americans have no savings at al while over 50% have nothing saved for retirement. New college grads on average have over $20,000 in student loans to repay, yet the unemployment rate for graduates ages 20 to 24 was 8.7 percent in 2010.
3. Emergency Fund: Before you even begin to think about buying a house or moving, you should consider having an emergency fund equal to at least 6 months worth of expenses. Include all the necessities and things that must be paid. Those things include your rent or mortgage, car payments, insurance, food, gas money, electric, phone, tuition, day care, etc. Add all your monthly expenses up then multiply that number by 6. You need this kind of fund for when unexpected life events happen. Examples of these type of events can be a job loss, illness and a major car or home repair.
4. Monthly Payment: National banking standards tells us that your mortgage payment should be no more than 28 of your gross monthly income. This means that if you make $50,000 a year, the maximum amount you would safely want to pay each month is $1,166. How can you figure this for you own salary? Take your salary x .28 then divide the total amount by 12 (months in the year) and there you have it!
5. Downpayment: This is an additional savings on top of your emergency fund. And a downpayment should be at least 5 percent of your purchase amount. As an example. If your monthly expenses are $2,000. a month and you want to buy a $100,000 house, you'll need $17,000. in the bank to afford this move. This amount doesn't include money needed for closing costs and moving expenses.
6. Lifestyle: We all have different wants and needs. Some may be fine spending a little more for the house of their dreams in exchange for taking fewer vacations. Still others would rather have funds for shopping, dining out, and travel. And don't forget about other factors, such as aging parents, car repairs and maintenance.
Buying a home can be a great experience, but it comes with financial responsibility that shouldn't be taken lightly. Be sure to consider these items over when considering a buy.
All The Best,
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