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How Much Home Can You Really Afford?

So, you’re getting ready to buy your first home, and you feel like you’re at the mercy of the market. And your mortgage lender. In some ways, it might even feel like they’re working against each other – especially if you’re in a really hot market in which you can’t qualify for the amount you’d need to buy what you want.

When it comes to providing pre-approvals for would-be homebuyers, lenders today are more careful than they were in the years leading up to the market crash, and that means your financial picture will be more rigorously scrutinized to determine your credit-worthiness and develop your max approval amount. Trust us, that’s a good thing. The last thing you want is to be house poor. Having a great place to live that you can’t enjoy or furnish or even leave because you have no money left won’t be fun.

“Just because a lender says you can afford a certain mortgage doesn’t mean you should,” said TIME: Money. “Consider your take-home pay – what actually goes into the bank after taxes, health insurance, and savings for retirement and college. Then add up all your monthly bills, not just debt but also things like utilities, phone, and groceries. You want to feel comfortable that you can cover all your household obligations while still meeting your other financial goals and keeping six months of expenses in an emergency fund.”

That’s why it’s so important to consider all of your monthly expenses related to buying a home. Beyond the principal, interest, taxes, and insurance that the lender, there are other line items to weave in that will help you determine your purchasing power and also help you to be comfortable from month to month.

Increased commuter costs

Are you moving out to the ‘burbs? That hour-long commute each way is going to add to your bottom line. Of course you’ll be using more gas. Will you also incur tolls? Then there is the wear and tear on your car, which could mean additional costs. You can estimate your commuter costs here.

Higher utility bills

A larger place could mean higher utility bills. Then again, more energy-efficient appliances, windows and doors, and HVAC could potentially result in lower bills, which could be a reason to look for a newer home over something older. It’s not out of line to inquire about utility bill costs from the existing owner (through your Realtor is probably best). This information could be critical in helping to make the best decision when buying a new home.

Homeowner’s association

Your pre-approval amount is an all-in number, but that number only includes principal, interest, taxes, and insurance. If you are buying in a community that has a Homeowner’s Association, your fee will be a separate cost that needs to be considered. An HOA fee can range greatly depending on your location, the number of homes in the community, and the amenities and services included.

Home improvements

You’re likely going to have a mailbox full of credit card pre-approvals and offers from places like Home Depot and Lowe’s after you close escrow – and they can be tempting. Reeeaaallly tempting, especially if you need new appliances or countertops or flooring (or all of the above). Ditto for furniture stores, because, like Lowe’s and Home Depot, those offers are often zero-interest deals. It may make sense to take advantage of one (or more) of them to make some necessary or wanted updates to your home – if you can swing the payments. They obviously add to your monthly obligations, even at no interest. And keep in mind that if you miss, or are late on, a payment, that zero interest is replaced with a much larger number, and that means you’ll face a much larger balance to pay.

Landscaping

If you’re coming from an apartment or a rental where the outside maintenance is taken care of by someone else, get ready to either: buy a lawnmower and an edger and spend your Saturday mornings in the yard, or pay someone else to take care of it.

Warranty

If you’re buying a brand-new home, you’ll typically have a warranty provided by the builder or developer, often for one year. You have the option of extending that, or buying/extending an existing warranty on an older home, and all of those options will cost you.

Creative Ways To Save For A Down Payment

You’d love to buy a house, and if it weren’t for that pesky down payment, you’d be sitting pretty in a place of your own, right? You’re not alone. Not surprisingly, the “top challenge for would-be homebuyers is the down payment requirement,” said The Mortgage Reports. In a recent study, “Over half of potential buyers claimed saving a down payment was a bigger issue than credit scores, income needed or housing prices.”

There are some creative ways to get there.

Look for down payment assistance

Many homebuyers don’t realize that these programs even exist. “Down payment grants are designed to help eligible buyers bridge the gap between their savings and the required down payment for a mortgage,” said The Mortgage Reports. “This money doesn’t usually have to be repaid.”

Grants are available through the Department of Housing and Urban Development (HUD) and typically have eligibility requirements that are tied to income. In addition, “You must be a first-time buyer purchasing a primary residence,” they said. You can check for available grants here.

Save your pennies

Every little bit helps! Get used to paying for things with cash, which is another tip financial analysts recommend to keep track of spending. At the end of the day or week, put aside any change. You’ll be surprised how it can add up over a few months.

Shop for a better savings account

Some banks offer special rates or even kick in money if you open a new account and maintain a certain balance. If you already have a good head start on your down payment, this could be a great way to get a bump. Also pay attention to any fees you are currently paying at your bank just to have your savings and checking accounts. If you can’t negotiate to get them removed, it might make sense to open fee-free accounts elsewhere.

Among the best out there: “Discover Online Savings has no minimum deposit requirement and offers a competitive APY of 1.40%. In addition, there’s no monthly fee and no minimum balance requirement,” said NerdWallet in their review of the best savings accounts of 2018. “Discover is a decent choice for simple, stress-free savings.” Discover also offers bonuses that are tied to a $15,000 minimum deposit.

Do automatic transfers

Setting up an auto transfer from your checking to your savings on payday is a relatively painless way to pump up your down payment. You’ll want to keep track of what’s coming out, and when. This is no time to get hit with an overdraft fee.

Get a gift

For many types of loans, the down payment can come via a gift. Just make sure you know the rules so you don’t run into trouble. “Even though lenders do allow gift funds, they also require mortgage applicants to disclose the source of these funds,” said Cherry Creek Mortgage. “There are specific rules for using gift funds as a down payment. For starters, your lender will need information about the donor. Donor requirements vary by lender and mortgage program. Some programs only allow gifts from a blood relative, or in some cases, a godparent. Other programs, however, will also allow gifts from a charitable organization or a non-blood relative. Speak with your lender for information on acceptable donors.”

Save all raises and bonuses

If you get a raise or a bonus during your saving period, don’t celebrate by blowing it on a new living room set. Pretending it didn’t happen and socking the money away will pay off in the end. “For a set period of time, consider saving all extra income you receive from work,” said Quick and Dirty Tips. “For instance, if you get a 3% raise, increase your down payment savings percentage by at least that amount. Or if you get quarterly or annual bonuses, transfer the full amounts to savings.”

Shift some money toward repairing your credit

That might seem counterintuitive if you’re trying to get together as much cash as possible to buy your house, but it might just be that doing a little credit repair can improve your buying position, which could lower your interest rate and lower the amount of money required by the bank for your down payment. A conversation with your lender or broker and a detailed look at your credit history may yield some surprising suggestions.

Pare down

This is a great time to take a good look at your stuff and decide what’s going with you, and what’s not making the trip to your new place. “You likely have some used furniture you no longer use or old clothes that are no longer in style. Sell it to make a few more bucks to use for your down payment,” said Bankrate. “You can sell your items on sites like Craigslist, eBay, Facebook and Amazon to turn your trash into someone else’s treasure.”

Call your cable, Internet, and phone providers

There may be lost money floating around out there. Bundling your services with one provider can create dramatic savings. It might also be time to look at new providers – just make sure you won’t incur a penalty or cost when you move and have to have your services set up again.

Make your coffee – and your lunch – at home

“If there are two people buying one coffee each at $4 every day, or $8 total, that adds up to $240 per month! So by getting a good coffee maker and putting it in a TO GO cup, you can potentially save more than $2,880 over the course of a year,” said Blue Water Credit. “If you think coffee was expensive, add up all of those $12, $20, and $25 lunches at restaurants when you step out from work. Even if you only buy lunch three times a week, that could easily end up with $50 a week in savings per person, or about $400 a month, or $4,800 per year!”

Phoenix Real Estate Market Report ~ January 2018

From December 2017 to January 2018, the number of new listings increased to approximately 10,587 (up 4,324 listings from last month) listings which is an increased of 69% from 6,263 listings in December. The number of sold transactions was approximately 6,212 sold transactions (down 992 transactions from last month). The decrease in number of transaction and the sharp increase in number of new listings has caused the months of inventory to increase from 2.73 months in December to 3.90 months which is an increase of +38.8%. This is normal to see a sharp increase in the number of new listings coming on the market after the holidays and it will take several months to see an increase in the number of sold transactions due to the time it takes to close a transaction. Overall, the inventory of homes on the market is still very low where in January 2018 there were 19,185 homes (down 503 listing from last month) on the market as compared to 27,050 listings on the market in January 2014.

The Phoenix Housing Market ended 2017 with an overall annual appreciation rate of approximately +9.0%. If inventory remain low throughout 2018 and a strong demand for housing continues we can expect the market to continue to appreciation above the national average. From December 2017 to January 2018, the average sold price increased from $309,327 to $315,070 in which is a +1.9% increase. Historically, the real estate prices don’t start to increase until February or March but this year price appreciation has started early. Since July 2017, the number of sold transactions has been decreasing from 8,024 sold transaction to 6,212 sold transactions in February 2017. Although the overall number of sold transaction have been decreasing the current percentage of foreclosures and short sales sold remains at only 1% of the market which indicates a healthy market. Since February 2017 (12 months ago), the average days on market has decreased approximately -7.4% (up from last month) and the number of sold transaction has decreased approximately -5.0% (up from last month).

Since February 2017 (12 months ago), the number of homes for sale on the market have decrease approximately -15.2% or 22,612 homes for sale on the market to a gradual decrease of 19,185 homes (Down 3,427 homes). Historically, 19,185 homes for sale represent the lowest number of homes this market has seen for over a decade. Property owners are not putting their homes on the market because the overall macro economy remains strong and they are holding off to accumulate additional appreciation from the market. This low number of homes for sale indicates we are in a seller’s market (low supply and increased demand).

Real estate prices will continue to increase and interest rates are planned to increase in 2018 so if you are thinking about buyer a home this year will be the time to buy before you get priced out of the market. Give us a call to discuss your best buying or selling strategy, TODAY!!

Position Realty
Office: 480-213-5251

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