Daily News And Advice
How Much House Can You Reasonably Afford?
There’s a term called house poor, and it’s something you absolutely want to avoid.
When you hear someone saying they’re house poor, it means they’re spending a significant portion of their income on all-things related to housing. This can include their mortgage payments but also maintenance, utilities, insurance, and taxes. When you’re house poor, you can’t afford many other things, and certainly not big extras like vacations.
Being smart when you buy a home and knowing what you can realistically afford can help you avoid being house poor.
There are a few mistakes people commonly make in their home search that increases the likelihood they may feel house poor. One is simply being overly ambitious during the homebuying process and taking on a loan that’s too big. Another big mistake is thinking only about mortgage payments and not anticipating the other expenses that go into homeownership.
The following are ways to get a home you can reasonably afford and lower your risk of being house poor.
Crunch the Numbers
Before you ever start the actual process of shopping for homes, look at the numbers.
You’ll need to take into account how much you earn every month, as well as your partner’s earnings if applicable.
Then, outline all of the housing costs, which include:
• The down payment
• Property taxes
• Homeowner’s insurance
• Utilities and maintenance
Tally up all of the expenses that you currently have and have to pay out each month. Then, look at your discretionary spending and include that as well. Including that discretionary spending is important and sometimes overlooked. It’s those extras that you want to be able to continue to pay for, even when you buy a home.
Follow the 28/36% Rule
Many financial professionals advise that you spend no more than 28% of your gross monthly income on your housing expenses. You should also plan to spend no more than 36% on your total debt, including not just your home loan but your credit cards, car loan, and student loans.
Some of the things that you should think about beyond your income and expenses include:
• How much savings do you have set aside? You want to have a reserve of cash in case something happens, and if your down payment or mortgage costs are going to dip into your savings, it’s problematic. Your mortgage may also affect how much you can set aside in savings or retirement, so this is something to think about.
• How much of a down payment can you afford? The traditional wisdom is that you put 20% down, but there are loans with options to put as little as 3% down. That’s going to raise your payment, however.
• Is there a different type of mortgage outside of a traditional bank loan that you might qualify for? For example, FHA loans are backed by the Federal Housing Administration and you may qualify with a lower credit score and down payment compared to a traditional loan.
Take Steps to Get a Competitive Interest Rate
Interest rates are historically low right now, which is likely why the real estate market has been strong despite the economic fallout of the coronavirus. Even with rates low, you should take the time to put yourself in a position to get the most competitive possible rate.
Your credit score is going to either help you or hurt you as far as getting a low interest rate.
Before you buy a home, look at your credit report, and clean it up if necessary.
Try to minimize how much debt you have compared to your income. You also want to lower the ratio of credit utilized to credit available..
Err on the Side of Caution
When you start looking at homes, you should always err on the side of caution. Keep your house hunt focused on the lower end of what you can technically afford.
If you’re a first-time buyer, it can be tempting to want to go all-in with the belief that you’re buying your forever home. Your life can change over the years, and your first home is probably not your forever home.
Focus on a starter home that works for your current needs to protect yourself from being house poor.
You can’t just think about your current income either. Think about what might happen if you lost your job or your partner lost their income. How would that change the equation?
Finally, one option that can help you better stay within your budget is buying a fixer-upper. You can find a great deal, and then you have the option to gradually create the home of your dreams as your budget allows, rather than having to go all-in right away.
Should You Go Solar at Home?
Installing roof solar panels has become an increasingly popular option among homeowners in the United States. Solar panels will convert sunlight into energy, and then you can use that energy to power your home.
While the cost of solar panels has gone down over the years, and increasingly people are installing them, it’s still a significant investment. There’s a lot to consider and both pros and cons to weigh.
Is Your Home a Good Fit for Solar Panels?
Solar panels can work in any climate, but your roof may not be suitable for installation. Tree coverage or age could be two factors making your roof unsuitable.
For example, if trees shade your roof too much, rooftop panels may not be optimal.
In most cases, solar panels work best on south-facing roofs, with a slope up to 40 degrees.
If your roof is old and nearing the time for replacement, this may also make your home unsuitable for solar.
There are alternatives if your roof doesn’t make you a viable candidate for solar panels, including ground-mounted panels or a community solar garden.
When Do You Plan to Move?
If you plan to move in the near-term, solar panels are probably not a good investment.
First, since they are an investment, it can take time to see a return. It usually takes around seven to eight years to pay off the cost of solar panels. If you’re going to move any time soon, not only will this investment not yet have paid itself off, but you may limit your pool of interested buyers when you hit the market.
When your solar system is installed, it is almost impossible to move it to a new location.
How Much Do You Pay for Electricity?
If you don’t pay a lot for electricity each month, then you’re not going to save much with solar panels.
Residents of some states pay more than others for electricity and therefore may find solar panels have more financial benefits for them.
What’s the Weather Like Where You Live?
Weather and, in particular, the sun are the most important things with solar panels. If you live somewhere there’s a lot of cloudy weather or rain, you’re not going to get as many benefits from going solar. If you have long or harsh winters, your solar system is also going to be less productive.
Will You Qualify For Financing?
There are flexible options to help consumers afford the initial, upfront costs of solar panels.
There are financing options, and there are also state and federal tax credits and incentives available.
You should explore what you qualify for. Otherwise, you’re going to pay a lot out-of-pocket upfront and you may not have the cash sitting aside to do that.
Many of the solar financing programs are state-based loans. There are also power purchase agreements and leases available.
Are There Quality Installers Where You Live?
If you live in a bigger city or near a metro, finding solar panel installation professionals may not be a challenge.
However, finding a reputable company can be more challenging in certain parts of the country.
You’ll have to do the research and find a company with a strong background, and also one that’s not going to try pushy sales tactics to lock you into a long-term contract that you might not want.
The Benefits of Solar Panels
While the above are questions to ask yourself, there are benefits of solar panels including:
• Reduced electric bills are one of the biggest reasons homeowners opt to install solar panels. Over 20 years, you could save anywhere from $10,000 to $30,000, depending on where you live and the size of your home.
• Solar panels allow you to be energy independent.
• You can reduce your carbon footprint when you go solar.
• Solar panels are almost entirely maintenance-free.
Solar panels certainly have pros and cons. While they don’t work for every family or home, they can have big advantages in some cases, making them a worthwhile consideration.
Move Over She-Shed, Make Room for the Backyard Office
March ushered in a new way of life for many people due to the coronavirus pandemic. One of the first things that happened in many states was workers were asked to telecommute from home whenever possible.
Now, even though shutdowns are technically over in many places, it seems to be a trend that’s sticking around.
A lot of companies aren’t calling employees back to the office anytime soon.
Working from home has had big implications for real estate. For example, after spending an increasing amount of time at home, many people are opting to move from cities and into the suburbs where they can have outdoor space and square footage.
There’s also a demand for home offices, but if you don’t have space for one, you can get creative.
One option is the backyard office.
Benefits of a Backyard Office
A backyard office can be a shed that you transform into a workspace. The benefits include privacy as well as natural light. You might even have a bit of a view from your outdoor office.
For a lot of people, they’ve found working from home leads to no work-life balance, but having a dedicated space separate from their living areas can help with the distinction. It’s easier to not only separate work and home life with a differentiated space, but you may find it helps you focus when you’re working.
Do You Need a Building Permit?
If you’re thinking about an office-shed, one of the first things you’ll have to determine is whether or not you’ll need a permit.
Where you live and the size of the structure you plan on building or putting on your property are the main determinants of whether or not you’ll need a permit.
If applicable, you may also need to check with your Homeowners Association and get their approval.
If you go the prefabricated route, meaning you buy a shed or shed kit from a company, some are marketed as being small enough that you’re unlikely to need a permit.
When you scope out your backyard for a location for your office shed, look for somewhere flat with good drainage.
If you aren’t sure or your backyard needs clearing or cleaning up before you can place your shed, you might want to work with a landscaper who can help you with planning.
Prefab or Custom-Build?
Many companies are now offering prefabricated office sheds. You can find them as kits, meaning all the pieces come to your home and you’re responsible for putting them together. You might also find an office shed that’s already built and arrives at your home almost ready to go.
When you choose a prefab shed, it may be more expensive than building your own, but also more convenient.
They’re available in different styles, and many have features like skylights or upgrades you can add on.
Some kits include doors, windows, insulation and flooring, and others don’t, so read the fine print.
Building Your Own Office Shed
There are other options that may be less expensive than a prefeb shed.
One is converting an existing shed into an office. In that case, your focus might be primarily on making an old shed into a comfortable, stylish place to work and perhaps adding power.
You can also find plans online and build your own shed.
Regardless of the route you go, you want your outdoor office to be someplace you feel comfortable and content.
Try to create an office with plenty of natural light.
Add comfortable furnishings, and surround yourself with things you find visually appealing. Add a rug to warm the space up.
Consider whether or not you’ll have meetings in your office, and if so, how you can have a space where guests feel comfortable.
You’ll need to ensure you have electricity in your office, and also Wi-Fi.
Finally, create a landscaped path leading from your home to your office.
A shed-office is one of the biggest trends when it comes to working-from-home design. It can give you a space that’s separate from your home and family so you can remain productive and focused, and also maintain a work-life balance.
Creating a separate area that’s detached from your home doesn’t just work as an office. It’s also something homeowners are looking to so they can have a home gym, a guest room, or even a learning area for their kids.
It’s one more representation of the move toward spending more time at home that’s impacting all of us.
What Should You Know About Homeowners Associations?
If you’re thinking about moving, there are a lot of factors to consider aside from the house itself.
Homeowners associations are one example. Living in a community with a homeowners association can have its benefits but also its downsides.
It’s important to be well-aware of the implications of living in a community with a homeowners association before you make an offer on a house.
The Basics: What Is An HOA?
An HOA is a governing body in a community, and you’ll often find they’re present in gated neighborhoods, planned communities, and apartment and condo buildings. An HOA is funded and operated by residents, and there’s a board of directors.
HOAs have meetings, create budgets, and are responsible for enforcing regulations and rules. The rules set by an HOA are legally enforceable.
A well-run HOA can improve property values because they work to make sure the community maintains a certain standard as far as how homes and lawns look. Poorly run HOAs can be expensive and make it difficult to own a home in the neighborhood because of the bureaucracy.
If you’re a member of an HOA, you might pay dues monthly, quarterly, or yearly.
The dues are meant to go toward keeping up common areas like clubhouses, pools, walkways, and lighting.
Fees vary significantly depending on location and the neighborhood or building itself. HOA fees might be $50 a month to thousands of dollars a month.
How Do the Rules of an HOA Work?
HOA rules are referred to as conditions and restrictions, or covenants. If there is an HOA in a community where you’re thinking about buying a home, you need to understand them well.
The majority of HOA rules are going to be related to the exterior of a home.
For example, you may be required to maintain your lawn in a certain way. You may only be able to paint your house in particular colors. In condos and apartments, the rules might be related to things like pet ownership.
If you don’t follow the rules of HOA, initially, you’ll be asked to comply. If you don’t, you may have to pay fines, and then if it gets beyond that point you may face a lawsuit.
Additionally, if you don’t pay HOA fees, the board can put a lien on your home or even require you to foreclose, depending on the state where you live.
What to Find Out About an HOA Before Buying
If you’re looking at a home with an HOA, the following are things to find out or ask your real estate agent to find out for you:
• Ask if you can attend an HOA meeting, or if that’s not possible, request a copy of the most recent minutes. This will give you a feel for the behavior of the board members and whether their top priority is resident well-being.
• Your HOA should be in good financial standing. Otherwise, you may be hit with an unexpected assessment that you have to pay if work needs to be done in the community.
• Are there are a lot of issues between the board and homeowners?
• You’ll have to consider how well the HOA’s rules will fit with your lifestyle and if you’re comfortable with that kind of control being exercised over your home and living environment.
• Go over, in detail, what HOA fees will include.
Finally, along with thinking about how HOA fees and rules will affect you now, you have to think about how it’s going to affect the resell value of a home you buy. There are a lot of buyers who simply don’t want an HOA, and if you do want to sell your home, your pool of buyers may be limited.
Over time, as HOA fees go up, it may put living there out of many people’s price ranges, making it tough to sell your home.
|Mortgage Rates |
Averages as of October 2020:
30 yr. fixed: 2.90%
15 yr. fixed: 2.40%
5/1 yr. adj: 2.90%