If you Google "First time home-buyers help", you'll be swarmed by articles and advertisements claiming to have the answer. They fight for your attention, like two dogs playing tug-of-war with a rope and you're the rope. You feel pulled between a lot of different "answers" and "solutions". They're not all bad, but they often don't cover the entire process. You get served a meal, without an appetizer. I'm going to serve you the appetizer and explain today how you can prepare to buy a home. In this post, you'll learn about what you can afford, how to save for for a home, and how long it will take.
I broke down the process into 4 simple steps. If two people went through these 4 steps individually, they both would come out with different answers. My point being, these steps are tailored for you and your situation. They're not hard-rules, like a lot of financial-guru's preach. I like to keep things dynamic and adjust to your situation. So, let's get started!
Step 1: How much can you afford?
I want you to head over to Chase's mortgage calculator. Then, fill out the form like this:
I filled out this form for a hypothetical couple that makes a combined $90,000 per year ($7,500 per month before taxes). This couple pays $300 to debt each month. They chose to have a 5% down payment.
Don't worry about the results yet, just fill out the form :)
Step 2: What's your timeline?
Next, what's your timeline? Your timeline isn't when you want to move into your home. Rather, it's when you want to have the available funds. Most likely, you'll move into your home 1-3 months after you save the enough funds.
I recommend choosing a time span, i.e. not a target date. It makes the math easier. So, for our hypothetical couple, let's say their time span is 2 years. If you want to, you can choose a target date. For example, "I want to save enough for a home by January 1, 2021."
Step 3: Calculate!
Alright, now for the fun part! There may seem like a lot of steps, but I purposefully broke it out to keep things simple. I'll first summarize the steps, then show you how our hypothetical couple would calculate it. If you're not the greatest at math, I'll help you out. Just message me.
Now, let's go through these steps for our hypothetical couple. Remember, our couple makes a combined $90,000 per year, with $300 debt payments per month.
Step 4: Make adjustments
We're finally ready to make some adjustments if needed! If your Monthly Savings is way too high, you can make adjustments in a number of ways. You can make your debt lower (i.e. lower your Monthly Expenses in the calculator) and it will lower your Monthly Savings. You could do a 20 year mortgage, or 30 year mortgage, and it would lower your amount. If you changed this, you would also have to change your interest rate to something higher. You would also be have to buy a home less than the new estimate.
Really, you probably don't need many adjustments. You will be in a very good spot financially if you just generally follow steps 1-3. They'll already be customized for you, since everyone has different numbers and goals.
Better Budget Co
Your guide to all things personal finance. We're big fans of goal getting budgets, debt fee living, and a good cappuccino.
My name is Corey and I have a passion for budgets and personal financing. I can talk about it for days (weirdly enough). Hope you enjoy the blog!
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