Market experts advise on what to keep an eye on a mortgage
While most banks will let you take out a loan with a payment around 30% of your income, market experts advise to keep this at 20% macimum.
First-time home buyers face a steep learning curve, needing to get a handle on mortgages, budgeting and other intricacies.
First-time home buyers have a steep learning curve, from understanding true affordability and how to qualify for a mortgage to managing their cash flow after their purchase.
“When buying your first home, you need to consider that what a lender will let you borrow is not necessarily the same amount as what you can reasonably afford,” said certified financial planner Eric Roberge, founder of Beyond Your Hammock in Boston.
While most banks will let you take out a loan with a payment around 30% of your income, Roberge advises clients to keep their annual housing costs (mortgage payments along with property taxes, homeowner’s insurance and annual maintenance) to 20% of their gross income.
“In today’s environment, they’re buying the payment, not the purchase price,” said CJ Harrison, CFP, vice president of DecisionPoint Financial in Mesa, Arizona. “But they need to keep in mind that these are super inflated home prices.
Overestimate what you think your post-purchase expenses will be, Harrison said, as furniture, yard maintenance and repair costs are high due to demand resulting from the hot housing market.
“Be patient before you start spending money after your purchase,” he said. “Pace yourself and preserve your emergency fund — and budget for future purchases instead of spending all your cash.”