| According to BankRate.com, the median U.S. home | | | | One member of our imaginary couple looses their job, |
| price rose to $176,900 in the second quarter of 2010. | | | | or gets sick, and they are forced to suddenly pay |
| I assembled the average household income and came | | | | higher insurance premiums. |
| up with the following situation: | | | | WHAMMO! The party's over! They may struggle along |
| AVERAGE HOUSEHOLD INCOME: $48,500 | | | | for awhile, eat into their savings (if they have any!) but |
| (DaveManuel.com, 8/21/10) | | | | slowly and surely they are going broke. |
| Mortgage Rates: 30 year fixed stands at about 4% | | | | Then they try to sell the house, but, they never really |
| Average down payment = 10% | | | | took care of all those little niggly maintenance issues |
| Lets do some quick math: | | | | the realtor told them about. |
| 176,900 - 10% down payment = 159,210 | | | | The house sits on the market and doesn't sell...they sink |
| Monthly payment: $760.09 (for 30years @ 4%) | | | | deeper in debt... The house falls further into disrepair... |
| Lets not forget to add PMI since they are only putting | | | | The prices of the houses on their block falls because |
| 10% downadd $82.26 (I used goodmortgage.com's PMI | | | | of the declining state of this one property.... |
| calulator to get this) | | | | ... get the idea...what caused this problem in the first |
| Add an additional 25% on top of the payment amount | | | | place? Guess what? It wasn't some bone head in |
| for maintenance costs on a home (this is what many | | | | Washington or on Wall Street. It was caused by the |
| realtors recommend) so we'll add another $210. | | | | bone-heads who bought a house they couldn't really |
| Lets not forget real estate taxes (in Pennsylvania | | | | afford to begin with... |
| where I live it averages about 30 mills) Lets estimate it | | | | Which brings us to take away #1: DON'T BUY MORE |
| at $530 which is low for many communities. That's | | | | HOUSE THAN YOU NEED. |
| another 130/month. | | | | Buying a home should be approached with great care |
| TOTAL= 1182 per month in housing costs. | | | | and fear! Yes fear! You are signing a contract for 30 |
| On the income side we have 4,042 per month gross | | | | years (though you can and should pay this off early!). |
| income from our example. | | | | So lets be careful out there. |
| I devised a sample monthly budget for our 'average' | | | | Take away #2: I advise everyone who wants to buy |
| family based on the averages I gleaned from the | | | | a home to talk to a financial advisor first, preferably an |
| internet: | | | | accountant or financial planner. Just be sure that you |
| We have already calculated their housing costs at | | | | get your advise from someone with NO VESTED |
| $1182 per month. | | | | INTEREST in your real estate dealings! Someone that |
| Electric bill $120 | | | | can give you an honest assessment of what you can |
| Phone $60 | | | | afford, and what you can't. |
| Food $160 | | | | #3: Know your credit score and fix any mistakes in |
| Car 700 | | | | your credit reports before you begin. This should be a |
| Car Insurance 200 | | | | no-brainer, if yo need help regarding how to get a free |
| Cable 40 | | | | credit report and correct any discrepancies please go |
| Restaurants 200 | | | | to Liz Weston's website. She is (IMHO) the absolute |
| Gas 240 | | | | best when it comes to your credit education |
| Clothing 150 | | | | (lizweston.com). |
| Cellular 100 | | | | #4 Most of all: be honest with yourself. Curb your |
| Credit cards 200 | | | | emotions: going at homebuying with an inflated sense |
| TOTAL 3352 | | | | of self...an inflated sense of how much house you |
| And here is where the squeeze comes: | | | | need and can afford...will only lead to problems in the |
| Gross income is 4042 but withholding takes away | | | | future once the air gets let out! |
| 25% of that or roughly $1000. | | | | I hope this helps give some perspective to the process, |
| So they are left with 3352 in bills and 3000 in income. | | | | it shouldn't be about the buying, instead be focused on |
| So they charge on the credit card the monthly credit | | | | being prepared to buy. Know how much you can |
| card bill goes up...or they borrow from the bank or take | | | | afford, be realistic about how much house you really |
| out a payday loan...and convince themselves they will | | | | need, and get some honest and unbiased advise. |
| pay it off with their tax refund. | | | | That's my formula for homebuying success. Goodluck! |
| And next...we all know what happens next right? | | | | |