How many houses can you afford? First-time buyers need a budget

Alexandra Lashner of Bensalem, Pa., Became frustrated after trying to buy a home this year and decided to postpone home ownership.

Source: Alexandra Lashner

Alexandra Lashner and her husband were delighted to buy their first home earlier this year.

They saved enough for a 20% down payment and had no debt. Yet they still couldn’t find a home, even after increasing their budget from $ 250,000 to $ 300,000.

“A lot of homes have become out of reach,” said Lashner, who is 27 and lives in Bensalem, Pennsylvania.

“Houses that we could afford a year or two ago are now completely out of the question. “

The tight supply of housing in the market has pushed up prices. In August, the median price of an existing home was $ 356,700, a 14.9% increase from August 2020, according to the National Association of Realtors.

This has left many first-time homebuyers on the sidelines. In August, they accounted for only 29% of all sales. Historically, they represent 40% of all buyers.

To get into a house, some buyers explode their budget. In 2021, 28% bought homes above their initial estimate, according to Zillow.

However, budgeting is very important before you decide to buy a home. Here’s what you need to know.

Your deposit

Calculate your monthly payments

Just because you get approved for a certain mortgage amount doesn’t mean you should be spending that much.

First, take a look at your monthly expenses, such as car loans, phones, and child care. Then figure out what you can afford to spend each month on a mortgage payment and make a decision from there, said financial advisor Jacqueline Cooper, founder, president and CEO of Financial Education Associates in Dorchester, Massachusetts. .

Houses that we could afford a year or two ago are now completely out of the question.

Alexandra Lashner

Potential buyer

Remember that you will also be paying property taxes to your local government, which is based on the estimated value of your property and your city’s tax rate. On top of that, you’ll have to pay for home insurance, which costs typical homeowners just under $ 1,000 per year.

You can also look to make cuts in other areas of your budget to allow yourself a higher payout, as well as look for locations that may be cheaper. As people decide not to return to the office five days a week, they move further and further away, said Jessica Lautz, vice president of demographics and behavioral insights at the National Association of Realtors.

“Young buyers are moving to smaller towns and suburbs,” she said.

Account for other expenses

JGI / Tom Grill | tetra images | Getty Images

Save at least a few months of mortgage payments before buying a home, suggests Cooper. This way you are protected in the event of your income disruption.

Also, have money in reserve for the unexpected.

“Something can break once you’re in the house or you can decorate it or change the finishes of the house,” Lautz said.

There are also regular costs for home ownership, such as a potential homeowner’s association fee or lawn equipment to maintain the property, as well as utilities such as heating and hot water. .

Closing costs

There are a number of costs involved in the home buying process, included in what are commonly referred to as closing costs.

They include application fees, a bank appraisal of the home’s value, attorney fees, escrow fees, home insurance, title insurance, a credit report, loan origination fees, transfer taxes, title search fees and registration fees.

It is between 2% and 5% of the price of the house and is due when you close the house.

Don’t give up on home inspection

In this competitive market, some buyers are forgoing home inspections, which look at things like the electrical system, roof, and the condition of plumbing, heating and air conditioning systems.

About 23% of buyers bypassed inspections in August, according to the National Association of Realtors.

“It’s the biggest budget for me,” Cooper said. “There are things that we don’t notice and we don’t have the experience to determine whether this is the right thing or not.”


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