Adulting With Erin: So You Want to Buy a House?
One of the most commonly asked question (or questions) in my series of adulting Q&As is about buying property. You’re not even sure where to begin. You’re not even sure it’s something you’re ready for? So, you think you might want to buy a house (or apartment, or condo or whatever)… what now?
I’m starting this as a series of blog posts to break it all down into digestible topics. If you’re overwhelmed by the subject, it’s probably because most of what you find on the internet makes the subject feel out of reach.
If you google “should I buy a house”, you’re most likely going to wind up on some paid advertisement or a generic post that leaves you more confused than when you started searching for answers.
So let’s ease in… there’s no rush! And even if you’re not “ready” to start your search, there’s no harm in educating yourself so when the time comes, you’ve got a better understanding of it all.
So, You Want to Buy a House?
The ? In that statement is there for a reason. I feel like the majority of people I know aren’t really sure if they should buy property, when they should buy, how they should go about buying, etc.
If you’re thinking you might be ready to buy a house, or it might be on the horizon, the first thing you’re probably going to ask yourself is:
How Much Can I Afford?
Once again, we start diving into a topic that can make your head start spinning. I know, it’s a lot. It gives most of us anxiety. But the first step is learning how to analyze what you can actually afford.
Let’s take a little intermission from talking shop & possibly feeling stressed with some calming, inspiration home photos to keep us optimistic and on track. Here’s some relaxing spa music you can play while you read…
Step One: The Money
I feel like this is probably the most obvious step. Do you have enough money in the bank to buy a house for cash? Well, then you can probably afford one. But you don’t actually have to pay cash. Having money saved will help you qualify for a mortgage though. Which leads to the million dollar question: how much (mortgage) can you afford?
There’s something called a DTI, or debt-to-income ratio that is used as a guideline for approving mortgages. Simply put, this ratio is what determines if a borrower can make payments each month. Remember our talk about credit & credit cards?
The standard ratio used is 43%. Meaning, the amount you pay every month (mortgage, mortgage insurance, homeowners association fees, property taxes, etc), should be less than 43% of your monthly income. So you should be spending less than half of what you make on all of those home ownership debts.
So, if you make $5000 a month, you should spend less than $2150 on debt payments ($5000 x 43%). You’ll want to subtract all of your other loans and credit card payments from this number. If you have a $400 a month car loan and $200 a month credit card bill, you’re left with $1550.
That $1550 is an “ideal” number of the maximum amount you can afford to take on in additional debt. Obviously, the less debt the better. And there are other factors and options to consider. But this is kind of a generally accepted formula.
Like I said, that’s just one calculation… a mortgage broker will be able to dive into this further for you. A lot of lenders look at something called a front-end debt-to-income ratio. Which is a ratio that only considers housing expenses.
If you’re looking to get more info on what you can afford, you can shoot me an email and I can give you a referral. I always recommend talking to someone directly who has their pulse on the market and give you more personal recommendations.
Be sure to bookmark this post because it will be a hub for the upcoming segments. Here’s a list of the next topics you can look forward to (they’ll be linked as they’re posted)!
How Does a Down Payment Work & What Can I Actually Afford?
The Housing Market: Relax, This Isn’t a Horror Story, Let’s Look At It All Rationally
The Economy: Again, Not Some Click Bait Article Meant to Scare You Straight
Interest Rates: How do they Work & Are They Actually Interesting?
How Exactly Does Credit Work & Why Is It Important?
Life Happens: Things to Consider Making Major Decisions
A Simple Timeline & Explanation of the Buying Process
Types of Property You Can Buy
Well F*ck, I Feel Defeated (Don’t Worry, This Is A Happy Post)
But… I Live In California (So Do I!)
IF YOU FOUND THIS POST USEFUL OR INFORMATIVE, YOU’LL LOVE MY ADULTING NEWSLETTER! LIKE THIS BLOG, IT’S ALL ABOUT SIMPLIFYING THE CONFUSING “GROWN UP STUFF” LIKE BUYING A HOUSE, SAVING MONEY, FIGURING OUT HOW TO CLEAN YOUR GUTTERS, BUYING LIGHT BULBS… YOU KNOW, THE “BORING” STUFF YOU DON’T REALLY WANT TO DO… BUT WE’RE MAKING IT EASY AND FUN LESS EXCRUCIATING.
Some Helpful Resources
ACORNS: Invest in Your Future with Spare Change & By Rounding Up Purchases
CREDIT PROS: Get Your Free Credit Score & Learn How to Improve It
