Is it a good time to buy a house? Charles Schwab's Brian Mahoney joins Cyndi and Jerry on Daytime.
For those interested in making a new home purchase, Brian has these tips:
• Weigh the upfront costs. Alright, so you've decided you are committed to buying a house. Now, you need to look at the numbers. The largest and most important cost is the down payment. 20 percent down is usually the starting point for home buyers. While it's possible to put down 10 percent or even 5 percent, if you do you'll also have to pay private mortgage insurance (PMI) which can be as high as 1 percent. On a $240,000 loan, this could mean an additional $200 a month.
• Consider the ongoing financial responsibility. Home ownership is an ongoing financial responsibility that includes insurance, property taxes, ongoing maintenance and repair, and possible homeowner's association fees. You should factor all of these costs into your monthly budget. A generally accepted rule of thumb suggests you need roughly 1 percent of the purchase price each year to cover maintenance. Look into your local property tax rates to see what they are and how much they can go up annually. And get insurance rate quotes for property insurance.
• Look at your overall debt. In general, housing costs shouldn't exceed 28 percent of your pre-tax monthly income. All of your debt combined (including credit cards, car payments, etc.) shouldn't exceed 36 percent of your pre-tax monthly income. Do the math: If you make $75,000 a year, your total housing cost shouldn't be more than $21,000 or $1,750 a month. But, that's only if your other debts don't push you beyond 36 percent.
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