Erase Debt and Save For A Home
So you have paid off all of your consumer debt and are thinking, "now what?" With no debt and if you have not yet purchased your first home start saving for a down payment on a new home.
You could do this at the same time as you are building up your emergency fund.
What Not To Do The housing meltdown of 2008 was caused by too many folks getting into risky real estate deals.
As many home owners and banks have come to realize, the old tried and true advice of saving 20% for a down payment and taking out a 30-year FIXED rate mortgage still applies.
But if you only make $50,000 annually you cannot afford a $400,000 house despite what your friend the real estate agent or mortgage representative may say.
First of all, a 20-percent down payment would be $80,000.
That means you need to finance $320,000.
Assuming even a good interest rate of 4.
5% on a 30-year fixed rate loan, you would be looking at a monthly principle and interest payment of $1,621.
39.
That doesn't include closing costs or tax and insurance.
So probably something closer to a $2000 monthly mortgage payment.
On an annual salary of $50K per year you probably would bring home after taxes about $3100 per month.
That would mean your mortgage payment would eat up two-thirds of your monthly budget.
You cannot afford it! Yet the above scenario is exactly what so many had done leading up to the financial meltdown of 2008.
Sure many blamed greedy banks and unscrupulous mortgage reps and there was a lot of that too.
But if most folks had just run the simple numbers, they would have seen that they could not afford it.
So What Should You Do? It is all in the numbers.
Figure out for your income, and more importantly your take home pay, what the maximum mortgage is that you can afford.
You want to keep your mortgage payment-to-income ratio below 33%.
And you want to save up enough money for a 20% down payment.
The reason is that you want to avoid the added fee of PMI (Private Mortgage Insurance).
Banks see folks who do not put down 20% as a high risk and penalize you with PMI.
And no, do not play games by getting a large loan that qualifies without the PMI and then taking out a second mortgage or loan for the remainder.
You still cannot afford it despite whatever games you think you can play.
And if at all possible save even more for a down payment if you can.
Remember, the more you put down, the less you need to finance.
Just aim for a mortgage you can safely afford.
Don't make the mistake of buying more house than you can afford.
And do your homework when looking for a home.
You erased your debt so do not make the mistake of getting into a home you cannot afford which will only lead you back into debt again or worse.
You could do this at the same time as you are building up your emergency fund.
What Not To Do The housing meltdown of 2008 was caused by too many folks getting into risky real estate deals.
As many home owners and banks have come to realize, the old tried and true advice of saving 20% for a down payment and taking out a 30-year FIXED rate mortgage still applies.
But if you only make $50,000 annually you cannot afford a $400,000 house despite what your friend the real estate agent or mortgage representative may say.
First of all, a 20-percent down payment would be $80,000.
That means you need to finance $320,000.
Assuming even a good interest rate of 4.
5% on a 30-year fixed rate loan, you would be looking at a monthly principle and interest payment of $1,621.
39.
That doesn't include closing costs or tax and insurance.
So probably something closer to a $2000 monthly mortgage payment.
On an annual salary of $50K per year you probably would bring home after taxes about $3100 per month.
That would mean your mortgage payment would eat up two-thirds of your monthly budget.
You cannot afford it! Yet the above scenario is exactly what so many had done leading up to the financial meltdown of 2008.
Sure many blamed greedy banks and unscrupulous mortgage reps and there was a lot of that too.
But if most folks had just run the simple numbers, they would have seen that they could not afford it.
So What Should You Do? It is all in the numbers.
Figure out for your income, and more importantly your take home pay, what the maximum mortgage is that you can afford.
You want to keep your mortgage payment-to-income ratio below 33%.
And you want to save up enough money for a 20% down payment.
The reason is that you want to avoid the added fee of PMI (Private Mortgage Insurance).
Banks see folks who do not put down 20% as a high risk and penalize you with PMI.
And no, do not play games by getting a large loan that qualifies without the PMI and then taking out a second mortgage or loan for the remainder.
You still cannot afford it despite whatever games you think you can play.
And if at all possible save even more for a down payment if you can.
Remember, the more you put down, the less you need to finance.
Just aim for a mortgage you can safely afford.
Don't make the mistake of buying more house than you can afford.
And do your homework when looking for a home.
You erased your debt so do not make the mistake of getting into a home you cannot afford which will only lead you back into debt again or worse.
