What You Didn’t Learn in School – Housing
Rent, Don’t Buy
at least until you are settled. When you rent you avoid many different taxes and when you buy a home there’s fees on top of that and when you go to sell you home. By all means if you are comfortable with your job, your location, and your relationship status, buy a home. Buy a home when you can afford it.
Budget 25% of gross income
When deciding on a home to rent, you have to factor in what you can afford, the location and the quality of the home. You also need to decide if you want old or new, apartment or a house, the distance to work and/or school, city, country, or suburbs, do you want a roommate or not, does the rent include utilities and how big is the space. 25% of your gross income is a good way to start when trying to pay rent because you need money for everything else to live.
Paying last month’s rent
If you paid one month’s security deposit, don’t pay your last month’s rent. If the landlord won’t give back the security deposit you paid, you’re going to have to sue them. “The cost of doing so will result forgoing your deposit. If you haven’t paid last month’s rent, the landlord will use the security deposit as the monthly rent. If you have cause legitimate damage to the space, fix them yourself or pay the landlord the correct amount of money.” Using your security deposit as last month’s rent will save you a lot of money.
Buy less than you can afford
Hopefully this a no-brainer. Don’t buy anything you can’t afford. Even if the house needs some fixin’ it’ll be worth it because you’ll get more money out of it. And when your income grows, then you can afford a nicer house if you want. And maybe eventually you can buy a house in cash because you’ve been saving by renting and living below your means.
Top two considerations
Location and price. Is the neighborhood nice and safe? How far is it to your job and/or school? What is the quality of the schools? How far is it from the stores and the hospital? How is the traffic in the neighborhood? Any special taxes? Crime rate? Don’t overpay. Research the houses in the area and compare them by price per square foot. Make sure the seller know you are looking a multiple houses, always offer an asking price and discuss with the seller maintenance fees. Really look on the internet because even your realtor may be biased. Make a list of what each house you like consists of and decide whether or not those things are a deal breaker.
Down Payment of 20%
On your mortgage that is. When you buy a home, the most important will be price, mortgage, interest rate and down payment. Plus taxes, insurance, and home maintenance costs. Putting down a minimum of 20% is important to make sure you don’t buy more of a house than you can afford. The larger your down payment, the lower your monthly payment. This makes it easier to pay off your house.
Don’t exceed 28% of your gross income. Including property tax and insurance. Siegel gives an example if you buy a $250,000 home, your down payment should be $50,000 (20%), a $200,000 fifteen-year mortgage (with a 6% interest rate will result in your monthly payment being $1,687 with $300/month property tax, and $100/month insurance. So your monthly payment will be $2,087 and if you use the 28% rule, your income will have to be $7,500/month or $90,000/year. Get the lowest interest rate possible without paying points or additional fees. And get a fifteen-year mortgage because “it assures that you’re not buying more houses than you can afford and saves you tens of thousands of dollars.”
Your “forever home”
Make sure you are in love with it. Make sure you have money to put into it. Make sure there’s enough room and the location is great. Everyone has a dream of finding the perfect home if they haven’t already. You better work hard for your dreams.
Except for the last one, these are not MY ideas. I am sharing tips from the book listed below because I think his tips are great, informative and true. Cary Siegel is a retired business executive.
There’s your house lesson. I learned a lot just from writing this. I didn’t come up with this all on my own… While I was working, someone returned the book “Why Didn’t They Teach me This in School? 99 Personal Money Management Principles to Live by.” By Cary Siegel. I snatched it up and it’s so good I just had to share. You can buy a copy here. It’s only $10.70!! I have decided to do a blog post on every chapter (a condensed version). Stay tuned for more the last two posts!!