Friday, July 15, 2016

How to Purchase a Home When You Want to be a Stay at Home Mom

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If you have kids now, or plan to have them in the near future, buying a house where your kids will live can seem like walking through a foreign country where you don't speak the language.  Here are a few things you should know about buying your first home.

You should put down 20% as a down payment.  If you do not have 20% to put down, you will have to pay the bank something called PMI.  Basically you pay them extra money every month as a penalty for not putting 20% down.  If you have to put down less, once you are sure that you have 20%, you can request the bank remove the PMI.  Sounds great, right ?   Did you know that if you buy a house for 300,000 and put 10% down (at an interest rate of 3%), after one year, you will have paid $476.23 of your mortgage and $8,022 in interest?  It would take 5 years of paying your regular mortgage rate before you have the required 20 percent.   You could get lucky during those 5 years and your home value could go up, or you could be unlucky and the value of your home could go down.  It happens, it has happened before and it will happen again.

If you want to be a stay at home mom, you will also need to watch budget.  Most sites tell you that your mortgage needs to stay below 20% of your income (some say 25).  The key to this is your income.  If you have a high income, you can spend a larger percent of your income on your mortgage, but if you have a low income, you need to spend a lower percent on your home.  A family with a take home pay of 100,000 that spends 25,000 a year on their home has 75,000 income left for other things, while a family with a take home pay of 40,000 a year would have 30,000 left to spend on other things.  Your ability to be a stay at home mom depends on your debts and your ability to pay them.  Keep this in mind when choosing a home.

So you picked a home.  It costs 300,000 and you have exactly 60,000 in savings!  You can put 20% down and move right in!  Wait.  There are other costs involved in buying a home that you will have to pay for.  You will have to pay the bank money to get a loan.  You will need an inspections, title insurance plus a few other things.  The fees on our first home were nearly 7,000 and I was shocked.  I cant just tell you what the fees are, because some of them are a percentage of the home price, but expect to pay well over 1% of the value of your home.   You will also need a cushion.  We moved into a home last year and the day after we moved in, a brown out occurred and destroyed both of our air conditioning units.   It cost $5,000 to replace the large one and $3,000 to replace the smaller one.  As a guide, I would estimate three to six months living expenses in a savings account as an emergency fund.

You read an article that says that Realtor get a commission of 5 to 6% when they sell a house, and you want to save that money for yourself!  You decide to buy a home that is for sale by owner.  I would not recommend it.  While many people have purchased homes for sale by owner, there is a reason the seller does not want to use a Realtor.  A Realtor is a trained professional that knows all the laws involved in buying a home and can help you out if you get into a sticky situation.  I would highly recommend using a Realtor for your first home purchase.  When we bought our first home, the original owner built a building over the property line.  We would have thought it was ok, and moved on with the sale, but our Realtor explained that we could not get title insurance with a building over the line and a neighbor could sue us at any time.  Not the way to start off  life in your new home.  Think of a Realtor like a nurse in the hospital.  It may appear that she is coming in to talk to you and bring you drinks, but she is assessing you each time she enters the room.  She has a purpose and you may not feel that you need her, but if something is going to go wrong, she will be the first person to spot it and she will move quickly to take care of a problem before it escalates.  Realtors are well  worth the money they make.   Don't risk losing your home because you wanted to save a little money.

So you have an emergency fund of four months expenses, and you have 20 percent to put down on your house, plus you have saved an extra $7,000 for the fees involved in buying a house.  You have made sure that the house fits in your budget.  You are now ready to buy your first house!   Happy Hunting!

1 comment:

  1. Yes, important in unerstanding about fees and ensuring you can afford the mortgage and not become "house broke" We've purchased two homes and sold. Once we settle down (military) we plan on buying again.