How Much House Can You Afford?

Buying a home has always been the American Dream. However, many potential young home buyers feel like buying a home is the American Dream:

- For old people - That comes with responsibilities that are not so dreamy - Which sets back other dreams - That ties us down - That makes us grow up… quick - Which is really out of reach

We, the millennial generation, are now the center of much focus with regards to the economy, and housing is a huge aspect of the economy.

Our generation, the one burdened with debt, out of work and still living at home - seems to find this American Dream undesirable rather than dreamy.

But some recent reports (read one here) suggest that despite the obstacles we have to overcome, things are changing! Our generation has suggested that our next move will be into our own home… but when that occurs is still yet to be known.

So, we have time, Millennials, and the best way to become comfortable with a decision is to understand the process.

It’s not a Target purchase; it’s a Tiffany’s purchase

It’s rare (actually never) that I walk into Tiffany’s at the mall with no inclination to buy something, and then end up walking out of the store with something (other than a free pamphlet). If I walk into Tiffany’s, it’s because I have been saving for a purchase, and I have a very good idea as to what I want to buy and how much I am going to spend.

Now, Target (despite recent security breaches) is a different story. I routinely walk into Target with the intent to buy socks and happen to walk out with socks, headphones, a book and some sweatpants.

In order to be comfortable with buying a home, the process must start many months (if not years) before the actual LOOKING process begins. We must be realistic in the sense of the amount of home we can buy relative to what we are earning and what other debt we may have.

Let’s look at the numbers

A common rule of thumb is that no one should own a house that causes their monthly mortgage payment (plus insurance and taxes) to be more than 28% of his or her gross income.

So, someone making a $50,000 per year shouldn’t buy a house that causes them to spend more than $1,167 ($50,000*.28/12) per month on their mortgage, insurance and taxes.

The process starts with figuring out the monthly mortgage payments that you can afford, and how that relates to the price of house you can buy. Then comes the saving aspect. A best practice is to put 20% towards your down payment. This now becomes your savings goal, 20% of whatever value house you believe you can afford ($200,000*.20 = $40,000).

We offer a new tool that will help you get through all this math, and help track your savings for a down payment on a new house. Set up your Wela account today to get started!

30 days of hell

Before I bought a home, I had always wondered why people stay in one house for so long.

Yes, they are expensive, thus not affordable to be rotating on a regular basis. But I am now convinced that the main reason people stay in homes for years is because they don’t want to endure the closing process.

It is truly 30 days of hell.

This is the hellish process (in some order) from my view:

- Found the house and signed a contract… Yay! - Gather every financial document you have ever received… since birth - Apply for a mortgage… Awful! - Pay $250 for a radon inspection… (what the hell is radon?!) - Pay $400 for a home inspection - Provide more information to bank for mortgage… (as if the first set of information didn’t tell your entire story) - Review 20 page document from home inspector … (and understand none of it) - Negotiate with seller to fix the issues found in home inspection - Provide more information to the bank for the mortgage… - Send more information to the bank… (you get the annoyance here) - Wire money to the closing attorney… Sad! - Sign hundreds of papers on a nice mahogany table - Get keys to the house… Now what?!?

Congratulations! You own a home! Now what?

The first thing that everyone tries to do is completely furnish the home just as all their prior residences were (including their childhood home).

I tried this… and it didn’t work.

Making a home a “home” takes a while. We have to remember the houses that we grew up in were filled with things that our parents accumulated for years.

Buying a home is a long-term purchase, so we can’t expect to have the finalized product within days (that’s simple investing advice)!

My suggestion—think of the process of making a home “homey” as a Lego project. Get the essentials and then build onto that to get the final product exactly how you want it. And remember, this takes years… not days.

The comfort of your own home

The thought and the process of buying/owning a home is extremely daunting.

But it remains the true American Dream. We (me included) can put as many hurdles in place to delay us from making this monumental purchase, but it truly is a very rewarding goal to accomplish.

It can be done and seems on the cusp of being done for many Millennials. It’s a process that includes focusing on getting other debt paid off, and building up ample savings for a down payment.

It’s time for us to bring that American Dream within reach, and begin enjoying the benefits within the comfort of our own home!