How to Find an Affordable Home

Buying a home is a BIG DEAL. This is likely the most terrifying prospect for your life happening right now. Some people rush the process. But you are not one of those people. Welcome to a lifetime of RESPONSIBILITY. If you want to know all the details about owning a home I suggest you read;

Table of Contents

Home-ownership can be a smart long-term move, but you want to know what you’re getting into.

“Sustainable homeownership has provided for wealth accumulation for owners. According to the Federal Reserve’s Survey of Consumer Finances, a typical homeowner’s net worth was $195,400, while that of renters was $5,400 as of 2013.” Why Homeownership Matters? Lawrence Yun

House Poor

House poor is a situation that describes a person who spends a large proportion of his or her total income on home-ownership, including mortgage payments, property taxes, maintenance, and utilities.

“– leaving little money for other expenses such as the phone bill, groceries, and, well, everything else. You might be rolling your eyes right now and saying to yourself, “You gotta be kidding me! Why would anyone put themselves in such a bad financial situation for a house? That’s ridiculous!”

Top 3 Methods And the Net/Max Method

Method #1 – The 28/36 Rule

So in this example, if you make around $64,000 a year. Using google’s mortgage calculator as a shorthand (tab over to maximum loan), and using the total monthly debt of $1,493.33 for 30 years at *4.32% interest rate.

You can afford a house valued at around $301,046.

Total amount for the lifetime of the loan $540,000.

Drawbacks of this method can be severe since you wouldn’t have too much wiggle room for much else, ie Travels, new car, etc. You also need to have student loans and other credit card payments lower than $420 a month.

*Interest Rate Bankrate Current Home Mortgage Rates. On March 13, 2019, according to Bankrate’s latest survey of the nation’s largest mortgage lenders, the benchmark 30-year fixed mortgage rate was 4.32 percent with an APR of 4.45 percent (Mar 7, 2019).

See calculation example below:

Method #2 – The 30% Solution

Using the 30% of gross income method is very risky since it does account for hiccups and other debts. Using google’s mortgage calculator again, at a gross income of $1,600 = ($64,000*30%)/12. Monthly expenses of $1,600 at *4.32% for 30 years.

That’s a home valued at $322,550.

Total amount for the lifetime of the loan $576,000.

Method #3 – Dave Ramsey’s 25% Method

Using the 25% of take-home income method is the most conservative and efficient, however, it’s hard to find homes at those ranges. $1,333.33 = ($54,400*25%)/12. Monthly expenses of $1,133.33 at *4.32% for 30 years.

That’s a home valued at $228,473.

Total amount for the lifetime of the loan $407,999.

This is the plan you should choose if you have no plan at all.

Method #4 – #Net/Max Method aka House Hacking

This is my spin on all the methods aka Net/Max. Using 30% of take-home income is efficient and gives you more wiggle room. And you can house hack the rest. Using google’s mortgage calculator, at a gross income of $64,000. And doing all the math stuff again, that’s $1,360/month at 4.32%.

That’s a home valued at $274,168

Total Amount over the lifetime of the loan, $489,600. However, considering that you are gaining $816 *12 months, that’s $9,792 minus additional expenses.

You are looking at least $7,500. You can use it for repairs, maintenance, upgrades, a bit of travel, some massages, paying down debts, or even paying down the home loan even faster.

This technique saves you, your friends, and/or your family money.

You lose a bit of personal space but companionship has its place. The right roommate is key. The roommate benefits from cheaper rent. You benefit from faster paydown, cheaper housing for yourself, and etc. It’s a solid strategy. Some nights might get weird tho.

Conclusion and Additional Resources

Home-ownership has always been part of the Dream

There are loads of benefits (inherent and apparent) and there are hidden risks (and/or drawbacks).

If you are contemplating buying a home, you should know and review the advantages as well as the roadblocks.

Buying a home is a long-term investment, with that said, you might want to always Buy Low and Sell High. *Or Better yet, Buy Low and Rent Higher (and forever). U.S. home prices rose an average of 34.71% over the five-year period ending Dec. 31, 2017. On average, homeowners saw the value of their real estate investment grow by 6.94% per year during that period.

The costs tho!!!!

There’s more to buying a home than the selling price and interest rate. You can expect to pay anywhere from 2% to 5% of the purchase price in closing costs.

For this reason, buying a home is not a very good short-term investment. Common closing costs (which will pop out of nowhere) include application fee ($$$), appraisal fee ($500+), attorney fees (if you need it), property taxes (because Uncle Sam and the Cheetoh), mortgage insurance (cuz we can’t have nice things), home inspection ($250+), first-year homeowner’s insurance premium (making it rain), title search ($$), title insurance, points (prepaid interest), origination fee, recording fees, and survey fee.

Just throw about 30% of the cost of the home into the trash.

Bonus Content: My First Time Home Buying Experience

I’ve (Alainta Alcin, Millennial Expert) went through the first time Homebuyer program in West Palm Beach, FL. And realized Homeownership may not be for me at this moment in time.

Well, the true reality is learning about PMI, HOA, and “silent” mortgages was seriously overwhelming but great information nonetheless.

..What the heck are mortgages silent? They ask for their money each month .. ain’t no silence in that it’s also known as a second mortgage.
There are tons of resources available for first-time homeowners. As you can imagine, the various programs also extend opportunities for those who haven’t owned a home in 3 years. Depends on the program, you can purchase a home to little to no money upfront.
Positives. Most cities, counties, or States provide funds to local residents in order to purchase a home. Your stability means long term growth and tax revenue. One guy, I’ve met received both the FHA and city grant to purchase his home in Rivera Beach.
Negatives. There are drawbacks i.e. limited/restricted regions to purchase your home. Additionally, stipulations such as you have to reside at the primary residence for a minimum of 15-20 years. And they are serious! You will Be notified to pay back the city loan. Yes, all of it back!!! However, if you do reside in the home for the minimum time your second loan is forever forgiven. Yeah, it’s kinda crazy however the education is priceless.
As of now, I’m saving up, kicking my investments in full gear, and waiting for the opportunity to level up to an open concept with space to entertain. #HGTV style. Until then, Here’s to travel and spending more on what makes me truly happy.