We just had a huge setback with our home purchase. We were supposed to be moved in already, but an inspection wasn’t completed on time. We asked to get some financial compensation if we were going to continue with the house.  From everything told to us, we fulfilled our end of the bargain and this is a big inconvenience. We’re still thinking of getting a house to own, but we have no idea of how this will turn out.

We’re happy that the $8,000 tax credit for first time home buyers had been extended. I’m hoping we’ll find a place wthin the time frame, but we don’t want to rush into a purchase just for the tax credit.

Have you had something similar come up at the last minute with closing? How did it get handled?

How Much House Can You Afford?

We have been planning on buying a house since we got married, but we knew we needed to get a good down payment for the place. First, though, we needed to have an idea of how much house we could afford to buy.

There are lots of 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 and decide for yourself if it is smart. We were given a larger amount than what we were comfortable with and lowered our target amount when we were house hunting. Our goal is to keep our housing costs (mortgage, taxes, and insurance) no higher than 25% of our monthly income.

Plan ahead and acculmate a sizable dow payment.

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 of what the day to day costs are for owning a home. We’ve had several friends purchase homes in the last year or two and they seem happy with their decision.

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. One reason we move was to be in an area with more affordable housing.  Hopefully you’ve developed a budget that works well for you and allows you to build a down payment for a home. 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 a bigger home down payment  is that it will reduce your monthly mortgage payment. If you put 20% or more, you can avoid paying private mortgage insurance.

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. ING Direct has a wonderful referral program. If you open a savings account with$250 or more using the link, you’ll get $25 bonus.

Remember there are other costs in buying a home.

Even though I asked around, I still not calculate all the costs of buying and being a home owner. 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. Zillow has some costs you should consider when you are looking at a house:

• Appraisal
• 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
  

Plan Before Buying

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. In fact, with some areas having a lot of empty homes, you may be able to rent a home at a decent rate. This gives you the option to test run home ownership without the big commitment.

Your Take

What are your goals? Do you plan buying a home in the next few years? Is renting a better option for you and your area? If you own a house, how did you plan for a down payment?

Photo Credit: Oracio Alvarado