With the arrival of the summer months and the reopening of the economy, many young professionals are dealing with home ownership for the first time. With a red-hot Phoenix real estate market, it’s important to keep a few things in mind before you fall into the housing craze. I bought my first home just fourteen months ago: Here are three tips I learned during this process that every newcomer should think about buying their first home.
Set your budget
Unsurprisingly, the first step in buying a home is setting your budget. Many authorities recommend that you spend no more than about 30% of your pre-tax income on your mortgage payment. Once you have determined how much you want to spend a month on a home payment, think about other home costs. If you’re currently spending $ 1200 a month on rent, it doesn’t mean you should budget the full $ 1200 a month on your mortgage payment. There can be costs associated with owning a home that you didn’t have to worry about when renting. For example, the apartment I rented prior to buying my home last year included utilities, HOA fees, and gym access in my rental payment. These are costs that I now have to pay separately. Homeownership undoubtedly has its advantages, but it also means that you are solely responsible for any repairs that arise – so be careful not to spend all of your savings on your down payment.
If, like most young professionals, you buy your first home, you take out a mortgage to help finance part of the home purchase price. One thing that many first-time home buyers don’t know is that most banks will require the borrower to pay for private mortgage insurance (often referred to as PMI) if the borrower does not pay at least 20% of the purchase price of the home. For example, if the purchase price of the home is $ 250,000, most banks require you to put at least $ 50,000 on hold to avoid paying PMI. PMI typically costs 0.5% – 1% of the total loan amount per year. For the $ 250,000 house we were talking about, that would be $ 1,250 to $ 2,500 a year. While many young professionals don’t have the savings to cut a whopping 20% to avoid the PMI, there are ways to avoid it. For example, some banks offer special loan programs that make the PMI obsolete for those with college degrees or veterans. Some credit unions have other programs that can help new borrowers avoid PMI. Regardless of your budget, it is worth checking out various banks and credit unions to both find the best interest rate on your mortgage and see if you qualify for one of their special programs that will save you thousands over time could be history of your mortgage.
Choose your perfect home
Buying your first home is an exciting process, and it can be tempting just to focus on finding the best home for your current circumstances. However, common wisdom is that due to closing costs and other costs associated with a sale, buying a home is often not economical unless you hold it for at least five years before selling it. This tip may seem obvious, but when looking for your new home, try to predict your future (and your family’s) needs, as well as your current needs. In the face of the pandemic, many professionals have started working remotely. As the economy opens up again, your employer may allow a hybrid approach. If you want to work remotely, consider an additional bedroom that can be converted into a home office. If a dog or child is in your future, consider how this will affect your home needs (back yard, pool, or extra space). Thinking a few years ahead will help you avoid “home regrets” and make sure you don’t find yourself stuck in a home that you will quickly outgrow.
This press release was prepared by the Greater Phoenix Chamber of Commerce. The views expressed here are your own.