Are You Ready To Buy?
A: As a full time residential sales agent in NYC, I am constantly getting calls from refferals of past clients as well as new clients who see my ads in the paper or on my company's website. The first thing I usually realize is that most buyers do NOT know what they can actually afford and are already looking at properties that, in my opinion, will spread their finances too thin. Are you ready to buy or should you continue to prepare for homeownership?
The worst thing a first time soon-to-be homeowner can do is buy too much house! Now I know that buying a home for the first time is very exciting, and that it is a very wise investment tax wise, but understanding exactly what you can afford based on your own lifestyle and monthly expenses is CRITICAL! BUYING A HOUSE THAT YOU FALL IN LOVE WITH THAT IS MORE EXPENSIVE THAN YOUR MAX BUDGET WILL DIRECTLY AFFECT YOUR QUALITY OF LIFE, LEADING TO UNECESSARY STRESS AND POSSIBLY PUTTING YOU IN A SITUATION WHERE YOU WILL BE FORCED TO SELL DOWN THE ROAD. IF YOU ARE FORCED TO SELL DUE TO MISMANAGED FINANCIAL DECISIONS YOU WILL NEVER GET TOP DOLLAR FOR YOUR INVESTMENT REGARDLESS OF THE CURRENT STATE OF THE HOUSING MARKET!
It is such an important topic that you MUST sit down one evening, go over every payment that you are responsible for every month, see what you are making AFTER TAXES, and figure out what you can afford for housing expenses on a monthly basis. Then call your mortgage broker BEFORE you start looking to find out what size loan you can get to keep your housing expenses under this max #, and get pre-approved for the loan in anticipation of submitting a bid!
GENERAL TIPS TO SEE IF YOU ARE READY TO BUY
*Some co-ops will require more than this in liquid assets as they want to be sure that you are financially able to afford the property and that you will always be able to pay your monthly maintenance bill. If you default on your maintenance bill, the other shareholders are left to pick up the tab!
If you are a bit below these general tips I just laid out (such as you have 5 months of liquid assets, not 10 months saved up) then exercise financial discipline and hold out for now while you prepare yourself to buy at a later time. In meantime, you can gain product knowledge for your target price point to get an idea of what apartments are selling for, but don't get emotional and don't fall in love with anything until you are financially ready to go forward with the deal! Here is a general chart to use that shows you how much AFTER-TAX income you have set aside for housing can afford you in terms of size of loan to take out.
NOTE: This is a very basic chart and requires some common sense on your part; I left aproximately $750-$1,800 worth of expenses for monthly maintenance + real estate charges for this graph. For example, if you ONLY have $800 of after-tax monthly income set aside for total housing expenses than obviously you couldn't afford to take out a $200,000 loan! So, use this chart as a general guide and feel free to ask me more detailed questions about your own financial situation on the LIVE CHAT if you like. Chart based on 30YR Fixed Loan @ 6.5%.
