Basic info for first time homebuyers
I often get emails from first-time homebuyers asking what it takes to get into a first home or condo in Phoenix. There are many resources on the internet or in bookstores to help educate first-time buyers. But I’ve found that most first time homebuyers are busy, working people that don’t have the time or interest to totally educate themselves on every piece of the home-buying puzzle (and we know that the schools don’t even try). So, here are some basics to determine if a first time homebuyer is ready to buy that first all-important piece of real estate:
1) Determine what monthly payments that will make you comfortable. Remember that monthly mortgage/tax/insurance payments are often higher than rent payments, but you may have some pretty substantial tax savings on the mortgage interest you pay.
2) Determine what price home you can buy for that monthly payment. You can do this calculation by yourself, but the easiest way to determine that number is to call a home loan professional (also known as “mortgage consultant” or “mortgage broker”. After asking you a few questions and pulling your credit (or asking for your credit score if you already know it), the mortgage consultant can give you a ballpark interest rate and payment. If you want to do-it-yourself, there are plenty of resources on the web. Try the loan calculators on www.UnderstandingHomeLoans.com . However, here is a basic scenario for a first time homebuyer:
Home price: $150,000
Assumed Down payment: 10% or $15,000
Assumed interest rate: 7% for the first loan of 80%, 10% for the second loan of 10%
Assumed loan: 30 year fixed principal and interest (this is the most conservative loan type)
First loan payment: $798 per month
Second loan payment: $131 per month
Average HOA: $180 per month
Average taxes: $100 per month
Monthly payment: $1209 per month
The first year, you’ll be paying about $8,300 in interest, which can be a deduction on your income tax (talk to your accountant), and you’ll apply about $1200 in equity to your home. As a renter, you get no equity and no chance for appreciation. As homes go up in value by 3-5% per year, renters have no chance to participate in that gain, and they also face more difficulty in buying as prices go up over the years.
Consider your accountant, mortgage professional and real estate agent as your home-buying team. Pick trustworthy and knowledgeable people that are willing to be your advocates and you’ll find that the home buying process can be a smooth and profitable venture.