Make Certain Buying a House is Possible

Everyone wants to buy their own home, to have their own place to call their own, to experience the American dream. But as we have come to learn over the past six months, especially in the South Florida housing market, that doesn’t necessarily mean a person can pull it off.

It’s imperative to crunch the numbers and to give the issue serious thought. Let’s say you earn a good salary of $60,000 a year, but have little money for a down payment. Can you possibly afford to be buying a house at this stage?

First, you need to establish whether it’s even possible financially. Then, whether it’s the right move given your current life situation.

As we’ve often talked about, buying a home is a good financial move for the long term ,but might not make sense if your life is undergoing dramatic changes in the next few years. For instance, if you are starting a family and need more space.

You can be pretty sure your rental costs will rise with inflation on a yearly basis if you put off buying. If you buy, you still have monthly payments for interest on the Florida home loan, along with the principal (the portion of the loan you pay back every month). But these two costs would be fixed for the life of the loan, so you avoid the kind of annual increases you’re likely to face as a renter.

Of course, as an owner you would be paying for homeowner’s insurance and property taxes, which are likely to go up with inflation. In the case of insurance, especially lately, rates could go up fast. And many people somehow forget they will have to shoulder all the maintenance and renovations that fall on landlords or superintendents while renting.

• But, if you bought now, it’s almost certain you’d pay less for housing in five or 10 years than if you rented a comparable property.
• Also, you’d gradually pay off your Florida home mortgage loan and the home’s value is likely to rise over time. So you’d build equity, the difference between the property’s value and what you owe.

However, it costs money to sell a property. The commission paid to the real estate agent runs to 5-6 of the sales price. Moreover, while home values have gone up a lot in recent years, they do level off sometimes, or even drop, so a quick turnaround might not net you a significant profit, if any.

There’s no guarantee you could buy a home now and sell it in a year or two for enough to pay off your mortgage and cover the sales commission and any other costs related to selling, such as repairs. Be very cautious about buying unless you think you will keep the property for 3-5 years.

As far as how much of your income you can allocate to buying a house, Florida mortgage lenders want an applicant whose monthly payment for principal, interest, tax and insurance (PITI) amounts to no more than 28 percent of their gross income. They don’t want your total financial burden to amount to more than a 36 percent debt-to-income ratio.

Assuming you have no debts now and could find a Florida home loan charging around 6.5 percent, you probably could borrow around $160,000. Obviously, you could borrow more if you are living with another person and you buy together. Typically, home buyers make down payments of 10 percent of the sales price. But some lenders will require only 5 percent, some none at all.

There are many federal and state programs that assist first-time buyers, such as the U.S. Department of Housing and Urban Development (HUD). As you browse for houses at the site of the National Association of Realtors, you can also make use of their calculators to help figure out things such as how much you can borrow and whether Florida home loans are affordable in your price range.