Thinking of becoming a first-time homebuyer? There are certainly
a lot of incentives to do so right now, including low prices and
record low mortgage interest rates. But are you ready to take that
The biggest question, of course, is can you afford it? But
that's an issue that goes beyond the simple matter of whether you
can fit a mortgage payment into your current budget. Do you have
enough for a down payment? Have you budgeted for insurance and
taxes? What about maintenance costs? If you're looking at a condo,
what about association fees, which may increase significantly over
time? There are a lot of other expenses besides the mortgage that
go into the issue of home affordability.
How much do you really want to spend?
The first question is, how much do you really want to spend on a
home? Many home buyers jump into buying the nicest home they can
afford without really thinking about how it will affect their
lifestyle. Do you want to tie up all you extra earnings in a
mortgage, or would you like to have more available for things like
vacations, entertainment, hobbies and investing for the future? You
might conclude you'd be more content with a more modest home that
allows you to pursue a more bountiful lifestyle in other areas.
Have you saved up enough for a down payment? This goes beyond
simply meeting mere minimums - you can get an FHA loan with as
little as 3.5 percent down - but do you have enough of a down
payment to get the interest rate you need? To get the lowest rates,
you'll likely need a down payment of 20 percent, in addition to
excellent credit. Although lenders have eased their down payment
requirements somewhat compared to a few years ago, anything under
20 percent still means you'll have to pay private mortgage
insurance (PMI) - which is like jacking up your interest rate
by another one-half to a full percentage point.
Look out for maintenance costs
What about maintenance costs? These can be a rude surprise for
many new homeowners. On something as big as a house, things are
always breaking or wearing out and have to be fixed or replaced.
And older homes tend to need more care than newer ones - they've
had more time for things to wear out. It's a good idea to have
several thousand dollars beyond what you've saved for a down
payment to hold in reserve for emergency repairs. Expect to average
at least a few hundred dollars a month in things that need to or
ought to be fixed or upgraded - particular when time comes due for
a new roof or furnace.
Finally, how stable is your income? Do you feel secure in your
job and that you'll continue to earn as much a few years down the
road as you are today? What about your spouse, if you're counting
on their income? In today's economy, it's a major concern. Also,
what other expenses might crop up down the road? Can you handle an
unexpected outlay for a new car if your current one gives out? Do
you have children whose needs will increase as they get older?
All these need to be taken into account.
Becoming a homeowner can be one of the best investments you'll
ever make for yourself and your family. But to make sure it turns
out that way, you need to take a careful look at all the economic
angles to make sure it's a good fit for both you and your