What You Should Consider If You Are Preparing To Buy Your First Home? By Peter Geckeler
As a 30-year-old, many of my friends & peers are beginning to wade into the overwhelming waters of homeownership. And what a time - The housing market is currently as hot as it has ever been. I’m sure you have read plenty on the reasons that home prices have been skyrocketing over the past few months. So rather than speak to that topic, I want to speak more specifically to the question of: “What should you consider if you are preparing to buy a house?”
I will first touch on the financial aspects to consider, then next month will speak more to the soft-side considerations of buying a house, as well as the steps to take if you are moving in that direction.
- Closing costs: These range based on the lender, type of loan, and price of the home, but expect at least $5,000 in closing costs plus another $2,000 – 3,000 in prepaid & initial escrow.
- Down Payment: Historically, 20% was the number to shoot for. Nowadays, most lenders want a minimum of 3% down on a property.
- Included in your monthly payment will be Principal (the actual paydown of the loan), Interest (the interest you are paying based on the interest % rate you get from the lender), Property Taxes, and Home Insurance. Taxes & Insurance traditionally get escrowed: held in an account to pay for these costs since they usually only hit once or twice a year.
- Paying Private Mortgage Insurance – until you reach 20% equity in the home, you will be paying Private Mortgage Insurance (PMI). Once again this ranges based on a number of factors, but expect at least $120 - $200/month added onto your monthly payment.
- Interest vs. principal – you are not paying down much principal in your first 5 years of homeownership; therefore, to financially benefit you are relying on the property to appreciate in value.
- Fund for emergency home items & maintenance: You want to have at least 1% of home value in an account for ongoing maintenance, and having a running list of the bigger items that may need to be replaced soon i.e. roof, water heater, HVAC.
- Taxes: In the past, you could itemize your mortgage interest, which you are still able to do, but you are capped to $10k/year. Also, the standard deduction is now twice what it was before, so it takes more to get you above the standard deduction.
If you want to discuss these aspects in more detail, please do not hesitate to reach out! https://calendly.com/pgeckeler/15min?back=1&month=2021-06