The horrors persist and so do our lives – sometimes, in the middle of everything else, you need to make a big move: so, what if you want or need to buy a home this year?
TODAY’S COST
It’s no secret that it’s more expensive to buy now than 2 years ago because of persistence in higher interest rates [AP], which themselves are high because inflation remains over 3% [BLS data] , which is probably causing a drag on the amount of money you have to save for or spend on your home purchase. It’s an *expensive* TIME.
The monthly payment for a $400k home you put 10% down on [about $50k after closing costs], with a 7.2% interest rate, $2500 in taxes and $2500 in home insurance, is: $3,120. At a 3.4% mortgage rate, the same house costs $2,200/month, $1000 less a month to the bank!!
Buying with less cash on hand, perhaps with a FHA first-time homebuyers minimal 3.5% down payment? Looking at $3,429 a month [mortgage calculator]. And this monthly cost does not include your water, trash, electric, gas, internet or any maintenance 😱.
That is a lot of money, and it’s why a lot of people are looking into alternative mortgages or ways to fund their purchase, and co-buying, aka buying with friends instead of or along with a spouse. I love to see it!
ALTERNATIVE MORTGAGES
Most people buy a house with a conventional or FHA mortgage, but there are other options – if you can get them. A USDA loan is only for people under certain incomes, buying in specific rural places but if that’s you, it’s worth knowing about since the interest rates tend to be lower and there is no down payment requirement.
Some people, who have the cash, income and credit, are assuming VA loans from sellers, which means you have to buy from someone who is a veteran and therefore has a [lower-interest] VA loan, and qualify to take on that loan AND be able to pay the equity difference between the loan and the sale price of the house [so as not to need another loan to cover it]. Pretty specific and not easy, but it is another path forward.
Finally, if people with existing non-retirement investment accounts [say, a trust, inheritance or stock portfolio] can consider a loan against the investments, called a portfolio loan or a margin loan. You can usually only borrow 30-60% of your portfolio, and it’s risky in the case that your portfolio goes down in value, but allows you to get a preferable rate, not need to go qualify for a mortgage, and – theoretically – lets your portfolio value continue to grow. You do have to pay this back, FYI.
COST-SAVING ALTERNATIVES: Co-BUYING
Share the burden, the responsibility and the benefits and joys of having your own place. It’s true that buying together lets you decentralize your skills – and also rebalance the unequal distribution of money. It’s common for perhaps one person to have savings or a nest egg, but maybe not the income to qualify for a mortgage, or a few people to have incomes that alone don’t qualify but together, will let them get a mortgage that’s enough to purchase a home in their desired area.
LEARN IF CO-BUYING IS RIGHT FOR YOU
A few realtor resources – with free online workshops! – are Lauren Goche in PDX, and Sarah Wells in Denver, check out their resources and hit them up if you’re in their city and want to buy with others. I facilitate group Agreements conversations about how to share your savings, labor, and set expectations about these and your equity appreciation and exit plans, if you want to plan to buy together.
OTHER COST CONSIDERATIONS
Friends it’s not just homes that are more expensive now, it’s electric and gas, home stuff – and home maintenance and services! 😱😱
There’s an adage that when you rent, your monthly rent is the most you’ll pay, but when you own, your mortgage is the minimum you pay. Remember that buying a home means maintaining that home – the rule of thumb is to assume 1% of the home’s value in maintenance costs averaged over time. If you buy a $400k home, that means expecting $4,000/year on average in expenses, on top of any updates or upgrades you want to do. And if you have an older home [looking in the mirror] it can certainly cost more. You’ll want to have a budget line for home maintenance and, optionally, upgrades.
My partner and I save $500/mo for maintenance and $200 for fun upgrades [though to be real we have spent it all and then some on maintenance 😱]. Houses can have either $500 problems, $3,000 problems, or $15,000 problems. There is no in between. I don’t know why, but I do know it and I don’t want you to be surprised!
I have a self-paced digital workshop on Money tips to buy a house, and if you want to snapshot the full picture of the cost to buy a home, from down payment to closing costs, to the other costs – like moving, furniture, and your ongoing monthly expenses, it’s a great way to get the full picture, fast!