Now that Spring is here, you might be considering taking the leap from renting to buying your first home! This is a very exciting step to take, but it also comes with a lot of questions. Before you decide on whether or not you want to purchase a home, take a look at these frequently asked questions by first-time buyers.
Why should I buy instead of rent? A home is an investment. When you rent, you write your monthly check and that money is gone forever. But when you own your home, you can deduct the cost of your mortgage loan interest from your federal income taxes, and usually from your state taxes. This will save you a lot each year because the interest you pay will make up most of your monthly payments for most of the years of your mortgage. You can also deduct the property taxes you pay as a homeowner.
How much of my income should go towards a mortgage? When you own a home, the ideal percentage of your gross monthly income that should go toward your mortgage is 20 percent. That means if you make $1,000 per month, no more than $200 should go toward your monthly mortgage payment and related expenses, such as taxes and homeowners’ insurance.
How much money should I save before purchasing a house? Saving for a down payment is a big part of purchasing your first home. Although it is common to put 20% down on a house, if you are a first-time homebuyer, you may qualify to put down as little as 3%. But putting down less than 20% may mean higher costs and paying for mortgage insurance (PMI), and even a small down payment can still be hefty.
For example, a 5% down payment on a $200,000 home is $10,000. The good news is once you hit your 20% down payment, you no longer have to pay the PMI. There are programs and first-time homeowner loans you can look into that will allow you to put a smaller down payment and have the same monthly payments.
You will also want to make sure that you account for any closing costs and moving expenses when you are budgeting for your next move!
While it might be tempting to put all of your savings into a down payment, don't forget that you may want to keep some to purchase items you’ll need to help maintain your new home.
What other costs will I need to account for when buying a home? In addition to your mortgage, you will have your monthly utilities. If your utilities have been covered in your rent, this may be new for you. Your real estate agent will be able to help you get information from the seller on how much utilities normally cost. In addition, you might have homeowner association dues. You'll definitely have property taxes, and you also may have city or county taxes. Taxes normally are rolled into your mortgage payment.
Another cost to consider is if you might need to be paying Homeowners Association fees. Your real estate agent can help you determine what these costs will be and help you determine your home’s price range accordingly.
While buying your first home can seem like a stressful and complicated process, we are here to make sure that every step runs smoothly. Once you have made a decision to purchase your first home, it’s time to find a realtor. Call me today to get started!