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HomeBlog Personal FinanceHow To Know If You Could And Should Buy A House This Year
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How To Know If You Could And Should Buy A House This Year

August 18, 2015 by National Debt Relief

A young couple with money at homeOwning your home has always been the great American dream. With renting comes the insecurity of never knowing when your landlord might decide to not renew your lease or to increase your rent dramatically. As an example of this where we live many renters have seen their rents raised to the point where they can no longer afford to stay where they are and were forced to move.

Of course, the biggest problem with renting is that you never accumulate any equity. In fact, all you’re really doing is helping your landlord increase his or her equity in an appreciating asset while no matter how long you stay in that house or apartment all you accumulate is a bunch of rent receipts.

So, how can you tell whether this is the right time to buy a house? There are basically two reasons to be hesitant. First, you may not be convinced that you want to stay in a house long enough to make buying it a good financial decision. And second, you may not be sure that you can afford all the expenses that are related to owning a house.

If you are thinking seriously about buying there are four questions you should ask yourself that would help you decide whether you should do it now or postpone the decision.

Should you buy before home prices go higher?

In much of the US the prices of homes are now higher than they’ve been in the last five years. Does this mean you should buy now before prices go even higher? The best answer to this is that you should do what’s right for you. If you plan on staying in that house for 10 years or more, the short-term changes in its underlying value should not make much of a difference. You do want to see your equity grow but the primary purpose of owning a home is to have a place to live coupled with the security that comes with owning versus renting. What this boils down to is that if you feel now would be a good time to buy, there’s no real reason for you to wait.

Do you have 20% to put down?

Many lenders want to see you put a 20% down payment on the house. However, if you are unable to come up with that much money, you’ll have to pay for “private mortgage insurance” or PMI. While the cost of PMI varies from lender to lender it’s generally 0.5% to 1% on every $100,000 you borrow

If you get what’s called an FHA-insured loan there are two different mortgage insurance premiums you would be required to pay. The upfront one is 1.75% of the size of your loan and this will be added to the amount you borrow, which will increase your monthly cost. There is also a second premium that’s assessed annually but billed monthly. It’s generally known as monthly mortgage insurance and is 1.3% annually if you have a 30-year mortgage and put at least 5% down. What this translates into is if you don’t have enough money to make a 20% down payment then buying can be an expensive proposition. For example, if you were to borrow $200,000 and were charged a 1% PMI that’ll cost you more than $166 per month, which is not an insignificant amount of money.

If you’d like to know the differences betweenFHA-insured loans and conventional loans here’s a short video that could help you decide which might be your best choice.

Could you handle the monthly expenses?Man decorating house

Your monthly mortgage payment will consist of four things – principal, interest, insurance and taxes. Together these are known as your PITI. If you were to get a fixed-rate mortgage your principal and interest will remain the same regardless of what happens to the economy. But your property taxes are calculated by your local county government based on its assessment of your property’s value. This means your property taxes could go up at any time either because your county assesses the value of your home at a higher rate or your local government decides to increase its tax rates. You need to ask yourself if your budget would accommodate an increase in your property taxes. You may not be in a great position to buy a home now if your budget is so tight that an increase in your property taxes would cause you to fall behind in your mortgage payments.

If you choose to buy a home in a community where there ‘s a homeowners’ association (HOA) you will be charged a mandatory monthly fee. If you don’t pay this fee, the HOA could put a lien on your house. In addition, it could decide to raise your monthly payment at any time. Would your budget accommodate a rate hike? You need to think about this.

Could you cover maintenance and repairs?

When you move from renting to owning you become your own landlord and will be required to pay for all those maintenance costs and repairs that come with having a house. Would there be enough money in your budget to fix the HVAC, refinish your floors, have a leaky pipe replaced, install a new hot water heater or repair a broken garbage disposal? A good rule of thumb is to budget 1% of your house’s purchase price annually for maintenance and repairs. As an example of this, if you were to pay $300,000 for a house, you should put aside $3000 per year or $250 per month to cover these costs. Of course, you won’t be required to spend that much every month. There are some months when you won’t spend anything. But there could be a month when you find you must replace every window in your home at a cost of $7500.

How long will you be there?

When you choose to buy a house you will end up paying thousands of dollars in closing costs. This will include things such as title insurance, transfer tax, an inspection, attorneys’ fees and real estate commissions. If you’re going to stay in that house for a number of years these costs will be spread out over time. On the other hand, if you think there’s some reason why you could be selling the house after just two or three years those costs, plus your homeowners’ insurance, mortgage interest, maintenance and property taxes might add up to more than you would pay in rent over the same period of time.

The net/net of all this is that the answer to whether or not you should buy a home this year has more to do with your life plans and personal budget than what’s happening with the economy.

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Easy National Debt Relief Caller: April Transcribed WE 1/17/2021 April: Our call may get recorded. What financial concerns had led you to seek out National Debt Relief's services? RILEY: I guess just not being able to pay my debt. April: What had you choose National Debt Relief over other companies that provide the same service? RILEY: Really just researching online. Everything that I had read about them seemed pretty positive. April: What service or program did National Debt Relief help you to get through? Like a payment or consolidation program, anything like that? RILEY: I just do bi-monthly payment to them, and then they reach out to my debt account, I guess, that negotiated everything for me. So, it’s pretty easy. April: Can you walk me through the process of what you went through to enroll for the services? RILEY: God, it's been like two years, so I kinda don't really remember. I just had to fill out some stuff online and then talk to them on the phone. I had to give them all my account information and everything. And then they worked out a payment plan for me. And they communicate with me like once a month with my statement. And whenever they have communication with my accounts, they have called me and had me verify before they've done anything and whatnot. April: That sounds like a really good service there. RILEY: Yeah. April: At this point, are you still in the program or have you completed it at this point? RILEY: I'm almost done. It was, I think, a two-year plan. So, yeah, I think I just have one other account that I'm paying on. April: How about any interactions with the negotiators? You said they will call you at any time that there was maybe an account activity that they want to confirm with you first. RILEY: Uh-huh [yes]. April: So, how is the interaction with them when they reach out to you and you're able to discuss with them? How is that interaction? RILEY: It's been super easy and positive for me and relieves a lot of stress and anxiety. So, yeah, it’s been very easy. April: And then how has National Debt Relief been able to work with you in terms of your payment plan? RILEY: I basically just told them what I could afford, and they figured it out. And they have offered COVID relief if I need to stop payment for the time being or whatever. Fortunately, I haven't had to do that. So, I don't really know how that would have worked, but that was an option. But they're always like, “Call us if you can't make payment, and we'll figure something out for you.” April: What are your thoughts about the cost in relation to the quality of the service you received? RILEY: I'm really happy with the program. [unclear 0:04:22] as far as I know. I don't have any complaints. April: Has working with National Debt Relief impacted your life? RILEY: Yeah. April: How would you say that it's impacted your life at this point? RILEY: It just has relieved a ton of pressure and stress, financial stress, anxiety. I'm not living paycheck to paycheck now to pay my interest, so that’s been nice. April: Have you had other experiences to National Debt Relief that perhaps you want to share with us in regards to your experience with them? RILEY: No. I think that’s it. April: On a scale of 1 to 5, where would you rate National Debt Relief, if 5 stars is that you recommend to your friends and 1 star is you're very dissatisfied? RILEY: I would say 5. April: In a few words, how would you summarize overall the National Debt Relief in your experience with them? RILEY: Just easy and stress-free. April: Would it be okay for us to also utilize your commentary as a review that we can publish for National Debt Relief? And that would go to public webpage here, but that's to help other consumers make good choices if they're also in the same market. RILEY: I guess. Would it have my first and last name? I don’t— April: Only the first name. And if that's an issue, we do the first letter. RILEY: [unclear 0:06:03] you want my full name. April: Not at all. So, we only do the first name as an option. We can also do the first letter. So, it's really up to you on which option you prefer. But just the first name. We don't do last name. We don't post anything personal like your phone number. RILEY: Yeah. I think you can use my first name. April: I do offer a link that we can also send you with a direct link to your review. So, once it's published, you also get to see directly. Is that something you would like to have sent to your email? RILEY: No.

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