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We have been planning on buying a house since we got married, but before we start looking at homes we want to have our finances in a good spot.
We also know we need to get a good down payment for the place.
How Much How House Can We Afford?
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.
Our goal is to keep our housing costs (mortgage, taxes, and insurance) no higher than 25% of our monthly income.
If you're looking at buying house some time in the future, Zillow can be a very helpful tool to calculate how big of down payment you'd need.
Use Zillow to Figure Out a Down Payment
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're happy with their decision.
Choose Your City Wisely
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.
Explore the Neighborhoods
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.
Bigger, Better Down Payments
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.
Build Your Stash
Speed along your savings by opening an account with banks with high interest savings.
Beyond the Down Payment
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 costs you should consider when you are looking at a house:
- Homeowners’ Insurance
- Transfer Taxes
- Underwriting Fee
- Loan Discount Points
- Pre-Paid Interest
- Property Tax
- Pest Inspection
Plan Your Down Payment Before Buying a House
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 on Buying a House
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?