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First Time Home Buyer's Guide
Step 1. What monthly payment can you afford?
Seems to be a simple concept but this is where many homebuyers make a crucial mistake. If you are currently renting (unless you currently have a negative cash flow each), this is a safe starting point. How much above your month rent payment can you afford? Are you putting money into savings each month? OK, the savings amount can be allocated to the house payment if so desire. Every person has their own strategy on saving but one thing to remember is that a home is a very solid investment. According to the Office of Federal Housing Enterprise Oversight, the average price of single family home in the United States increased 53% in price over the immediately preceding five year period starting from April of 2007. Very few of us did that well in the stock or bond markets over the same period.
Other factors to consider. Will your car be paid off in the near future and do you plan on continue to drive it after it is paid off? Will you be renting out a room in the house to a family member or friend? These are factors that can increase the monthly payment you can handle. The potential of an increased tax deduction is another factor. The interest portion of your monthly payment and the real estate taxes will be itemized deductions on Schedule A of your federal income tax return. Use this tool to obtain a rough estimate of how much your tax savings will be.
Step 1. What monthly payment can you afford?
On the negative side, you need to consider the utilities and all other payments not wrapped up into the monthly mortgage payment. Typically, your monthly mortgage payment will include principal plus interest on the loan, all real estate taxes, and home owner's insurance. Utilities, condo fees, parking fees, trash removal fees, recylcing fees, home owner association fees are all examples of items outside.
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