Buying Your First Home: Are You Ready?

Buying your first home is a dream you can achieve earlier in life than you may think and a home affordability calculator can show if you are ready. Rarely do people have enough liquid assets to buy a home in cash, which is why mortgage loans exist through entities like Ratetext.

First, you have to know if you’re committed to buying your first home and keeping up with payments. You know you’re committed if you can answer these questions positively:

• Do you have an income? Is it stable?
• Are there any others contributing to income?
• Will you commit to staying in this first home for 5 years or more?
• Are you prepared to keep up with the maintenance of a home for plumbing, structural issues, and bills such as utilities, water, sewage, trash fees and more?
• Are you planning on any major life changes such as quitting your job, moving across the country, starting a family, changing your career, etc.? All of these types of changes will affect your financial situation and your home affordability commitment.

Renting or Buying?

There are pros and cons to both renting and buying a home. When considering buying your first home, we recommend that you proceed if you know you will be living in a residence for 5 years or more. Often, your monthly payments will be less owning a home than they would be if you were renting, but it depends on how long you will be at the residence.

Renting: Only staying in a residence for a year or two? Renting might be the way to go. As a renter:

• Your landlord will be in charge of all home repairs and maintenance issues, which can save you money over time.
• Renters don’t need to pay property taxes, nor do they need to invest in homeowner’s insurance.
• Renting fees can go up every year depending on the landlord and the current housing market.
• You won’t be able to make additions or changes to the residence. That includes putting holes in walls for simple decorations and frames in many renting properties.
• You can move quickly and easily, without having to sell your home.

Buying: You own the home you live in. Buying your first home is exciting, but only if you’ve calculated your home affordability and you know you can keep up on payments.

• Owning your own home allows you to be locked-in to monthly payments instead of fluctuating payments that can happen with renting facilities.
• Interest rates on mortgage payments are usually tax-deductible.
• Mortgage rates can be catered to your budget, allowing you to pay the overall cost over 15-30 years.
• Your monthly payment won’t go up when the housing market changes.
• You are your own landlord. That means you keep up on maintenance issues, but you can make whatever additions or changes you want without asking approval from a landlord.

Calculating Home Affordability

A big part of buying your first home involves learning about what you can afford, realistically. By the time you calculate your home affordability, you should know if you’re in a financial situation to commit to buying a home. Can you commit for 5 years or more? Are you financially stable? Then start calculating home affordability.

Start calculating home affordability by looking at your bank accounts and billing statements. Never buy a home that costs more than 36% of your take-home income. (Notice that we said “take-home” income, not the total income.) Ratetext helps calculate home affordability based on mortgage payments, property taxes and fees, home insurance, and monthly living fees. This should not exceed 28% of your monthly gross income.

Many buyers also follow the 50-20-30 budget rule for home affordability. This means 50% of your take-home pay goes towards all needs, 30% for wants and 20% for savings. No matter what budget rule you follow, Ratetext can help make put your home affordability in a range that works with your income.

Come Prepared

To help the process of buying your first home go more smoothly, come to our Ratetext office with information such as:

• Monthly income
• Billing statements
• Bank account statements
• Work information
• Driver’s License
• Social Security Card

With this information, we can help calculate the home affordability of a down payment. This depends on the type of mortgage loan and the cost of the home. Most loans require 5% of a down payment, but FHA loans may only require 3.5%. We can calculate these numbers for you as well as closing costs and fees.