What to Consider when Buying a Home

For millennials, the decision of whether to buy has never been harder. Many millennials are in a financially weak position because of the aftermath of the Credit Crisis and student loan debt.
In the last 30 years, I have seen many young couples grapple with this decision. Having children forces them to think about education. If they live in the city, they may want to consider staying in the city and finding a good private preschool and elementary school. Unless they make a substantial income, private school may be too expensive. If they move out to the suburbs, they can buy a home, pay property taxes and send their child/children to public school. Property taxes are deductible. Private school tuition is not deductible. One of the negatives of choosing a private school education is that parents are often not able to afford to contribute to college funding as well.
Here are some guidelines that I recommend couples think about when deciding whether to buy a home:

·      It's important especially now to make sure that you can afford both the down payment on the home as well as keeping an emergency fund of 3 to 6 months’ worth of bills.

·      It is important to understand the PITI rule. Now banks will not allow you to spend more than 28% of your gross income on principal, interest, taxes and insurance.

·      Credit ratings are an important factor to consider also. According to JP Morgan Investment Management, banks require a credit rating of 743 or higher to get a home loan.

·      It is important to have a long time horizon when buying your first home. The home has to appreciate 10% just to break even overtime. You need to pay the realtor 4.5% to 6% to sell the home. You also have transaction costs to buy the home and transaction costs to get out of the home as well as moving costs.

These are a few suggestions. If you are considering buying a home and have questions, please call my office at 201-843-0044 and we can discuss it.