Tips for First-Time Home Buyers
Comfortably spending $1,000 a month in rent does not mean you can afford a $1,000 mortgage. In addition to your mortgage, you're responsible each month for taxes, homeowner's insurance and, if you don't put down 20 percent of the purchase price, private mortgage insurance or PMI, which is a lender's way of protecting itself because you're a slightly higher risk.
What to do:
- Use the mortgage calculator tool to understand how much mortgage you can handle. Be honest with yourself! Make sure to account for all your debt so your result is as realistic as possible.
- Open a separate savings account and deposit the difference between your rent and the total cost of a mortgage, plus the extra costs mentioned above. For example, if you pay $1,000 in rent, deposit $500 into the savings account on the first of each month. After a few months, if you're able to pay your rent and your remaining bills without that extra cash, you may be able to afford a mortgage.
- Examine what your monthly housing costs would look like. The electric bill of an 850-square-foot apartment is substantially lower than that of a 2,000-square-foot house, not to mention the increase in costs of upkeep and maintenance on the home.
Step 3: Assemble Your Team