Advice iq do your homebuying math


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Can you afford to move?

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Advice iq do your homebuying math

  1. 1. Do Your Homebuying Math Submitted by Larry Frank Sr. on Thu, 12/12/2013 - 12:00pm The biggest purchase you likely ever make comes with many potential pitfalls. Here’s how to dodge some. Home sales do remain sluggish. The number of contracts Americans signed to buy previously owned homes unexpectedly fell in October for the fifth consecutive month. The gauge of pending home sales decreased 0.6% after a 4.6% drop in September, according to the National Association of Realtors. Gains in hiring and consumer confidence will likely boost the housing recovery as the economy expands. If you’re one of the many prospective homebuyers, know these homebuying mistakes from Kate Ashford, writing in Forbes · Buying when planning to move again soon. · Buying more than the budget can support. · Forgetting about other ownership costs, not to mention costs of moving and settling in. · Buying with a low down payment; if you can’t afford saving monthly for the down payment seriously consider staying where you are. · Buying a home without inspecting it. · Going on a spending spree so everything else is new, too, which adds to both your stress and additional debt. These mistakes make for real financial disaster later. Simple steps help estimate the difference between home ownership and your current housing costs. The difference is what you save for the down payment – these days, it’s typically close to 20% of the new home’s price (the national average is 16%).
  2. 2. First, add up your current monthly housing expenses. Include your principal, interest, taxes and insurance (PITI) or rent, your utilities such as gas, water, sewer and electric and any other monthly expenses specific to your current housing situation (for example, your membership in a homeowners’ association). Determine monthly expenses for the new place, including down payment, mortgage interest and real estate taxes and weigh them against your current and likely future income. Also calculate energy costs for the new place. Estimate both categories wisely and realistically. Subtract your total monthly expenses from your calculated expenses for the new home. If this produces a positive number, you must save this amount monthly for your down payment. If you can’t afford to save the monthly amount for your down payment on top of your housing costs today, you can’t afford to buy and live in the new housing. All is not lost – just calculate when you expect to amass the down payment. If subtracting your monthly expenses from the new home’s calculated expenses produces a negative number, the new place is less expensive but you still need to save for the down payment. Also calculate your debt to income ratio (DTI). How much you spend related to how much you earn tells you – and mortgage lenders – your capacity for more major debt. The two types of ratios are front-end, which primarily incorporates housing costs, and back-end. Use both to decide how much new home you can afford. Your biggest mistake to avoid: moving and then discovering that your budget falls short to support life in the new home and that staying put was your better option. Follow AdviceIQ on Twitter at @adviceiq. Larry R. Frank Sr., CFP, is a Registered Investment Adviser (California) in Roseville, Calif. He is the author of the book, Wealth Odyssey. He has an MBA with a finance concentration and B.S. cum laude in physics with which he views the world of money dynamically. He has peer-reviewed research published in the Journal of Financial Planning. AdviceIQ delivers quality personal finance articles by both financial advisors and AdviceIQ editors. It ranks advisors in your area by specialty, including small businesses, doctors and clients of modest means, for example. Those with the biggest number of clients in a given specialty rank the highest. AdviceIQ also vets ranked advisors so only those with pristine regulatory histories can participate. AdviceIQ was launched Jan. 9, 2012, by veteran Wall Street executives, editors and
  3. 3. technologists. Right now, investors may see many advisor rankings, although in some areas only a few are ranked. Check back often as thousands of advisors are undergoing AdviceIQ screening. New advisors appear in rankings daily. Topic: Real Estate Home Buying and Selling Mortgages