Buying your first house is exciting! And wild. Homes today cost a median of $391,200 and fly off the market in just 17 days. Plus, interest rates are rising fast. First-time buyers need guidance on finding savings, such as loan products that require lower down payments. The double-digit annual gain in recent home prices has locked out many buyers, especially first-time buyers. More inventory is coming onto the market but first-time buyers are still struggling to afford today’s higher home ownership. The percentage of first-time buyers was down in August of this year as only 29% of sales were new owners compared to the usual average of 40% first-time buyers.
Consider Creating A Budget
A budget is essential to afford homeownership. Do not overextend yourself. Millennials aged 25 to 40 say they have regrets about purchasing their first home, and the top regret is the cost of ownership. Cost of maintenance, mortgage, insurance, and taxes, and 13% say they also feel they overpaid for their property. A good tip for new buyers is to create a budget and consider all the costs of homeownership before signing on the dotted line for your new home.
Calculating The Down Payment
Use the 25% rule to see how much house you can afford. Before house hunting, determine how much house you can afford. Be sure to include your monthly housing costs—including principal, interest, property taxes, and home insurance. For example, if you bring home $6,600 a month, your maximum house payment is $1,650. Now imagine you get a 15-year fixed-rate mortgage at 4% interest. If your property tax is 1.14%, home insurance is $1,200 per year, and PMI is 0.5% (for down payments below 20%), here are some home prices you could afford:
- $185,000 home with 5% down ($9,250)
- $194,000 home with 10% down ($19,400)
- $225,000 home with 20% down ($45,000)
- $253,000 home with 30% down ($75,900)
Prepare For Closing Costs
Closing costs are the expenses over and above the property’s price that buyers and sellers usually incur to complete a real estate transaction. Those costs may include loan origination fees, discount points, appraisal fees, title searches, title insurance, surveys, taxes, deed recording fees, and credit report charges. They can add up to between 2% to 5% of the home price and are due at closing. An example is $300,000 home x 3% = $9,000 closing costs. That’s a big chunk of change—on top of your down payment.
First-time home buyers won’t have cash from selling a previous home to use as a down payment, so a smaller down payment like 5–10% is okay too. But then you’ll have to pay PMI (private mortgage insurance). Whatever you do, never buy a house with a monthly payment that’s more than 25% of your monthly take-home pay on a 15-year fixed-rate mortgage (which has the overall lowest total cost). And stay away from expensive loans like FHA, VA, and USDA.
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About The Real Estate Company
Residential and Multi-family Realty Services for Lexington, Richmond, and Surrounding Areas. We close over 40 million in sales each year. Our love for Central Kentucky and our clients is the key to our success. We provide careful guidance, persistence, and savvy marketing to deliver results for our clients time after time.
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