Make Next Year Your Last Year to Rent
Maybe it’s because we’re in real estate, but a common conversation we have with people in January involves them telling us that this is going to be the last year they rent.
With that in mind, we wanted to compile a little bit of advice for people who are gearing up to enter into homeownership and getting out of the rental cycle.
A Home is a Solid Investment
While you’re renting you’re essentially investing your money in your landlord’s real estate without getting any long term return. On the flip side, each mortgage payment you make is like adding money to your home’s equity piggy bank. It may seem like a little at a time, but it does add up and that equity can eventually be use toward future investments or a nest egg to support your next goals.
Being a homeowner also comes with some unique tax benefits. You can reduce your overall tax liability. Mortgage interest and property taxes are both tax deductible. Depending on your specific situation you may qualify for some additional benefits. The Kern Team can help you determine how to maximize the tax advantages of homeownership.
How Much Do You Need to Have Saved
When you’re ready to start house hunting, the first step is to go to a mortgage banker and get a pre-approval letter (unless you are intending to pay cash). A pre-approval letter enables to submit stronger offers for a home that are more likely to get accepted than pre-qualification letters.
How much you get a pre-approval for will vary, but it will mean your mortgage payment will not surpass 40% of your monthly salary. That doesn’t mean you need to spend that much, just how much you are able to borrow.
To avoid becoming house poor (when you put all your money into a home and are now living paycheck to paycheck) the moment you close on a home, it’s good to have some savings left over after your down payment and lenders require a certain amount in reserve..
Assuming you’re going to purchase a $800,000 home, you would typically expect to spend $120,000 on the down payment (20%). Then, it’s good to have six months of expenses saved up in reserve (right now you could expect that home payment to be around $3,700 a month including taxes and insurance), which adds up to $22,200. Then, you can expect to spend about 3.5% of the home’s value per year on maintenance (this is the average over 30 years in a home; of course some years are a lot less) which comes out to $17,500. For back of the napkin calculations, if you have $139,700 saved up and have a household income of $111,000 a year you could purchase a $500,000 home without breaking a sweat.
Invest in Your Own Future and Freedom
As long-term investments go real estate is one of the most reliable. Taking the leap and buying your own home improves your living situation as well as your financial future. You can also create a better long-term budget plan once you remove the uncertainty that comes with unpredictable rent increases that is included with every lease renewal. A fixed-rate mortgage is the best option to keep your monthly payments steady, and there is always the option of refinancing when rates go down to reduce your monthly payments.
Miami is a fantastically diverse city, so choosing where you’ll buy your home is as much fun as finding the home of your dreams. Prioritize a neighborhood that fits your aesthetic and allows you to express your creativity or one that’s near work, school, and your favorite restaurants and entertainment. We can help you find the community for you to become a part of for years to come.
Becoming a homeowner can give you a sense of financial stability and security. The Kern Team is here to help you through the process. Make an appointment to get started today.
