A young couple in Seattle who rushed to buy a $730,000 home is now regretting their decision. Jonathan and Shalom, featured in Episode 111 of Ramit Sethi’s show “How to Get Rich,” are experiencing panic attacks and arguments over furniture purchases due to the financial strain of their $4,150 monthly mortgage payment. Sethi emphasizes the importance of avoiding the trap of buying based on real estate marketing rather than what one can afford. To help aspiring homeowners determine their readiness to buy, Sethi provides five questions to consider.
Firstly, Sethi advises buyers to think of homebuying as a long-term move and ask themselves if they plan to live in the home for 10 years or more. This is because buying a home involves significant expenses such as closing costs, furnishing the home, and moving, which can quickly add up to thousands of dollars.
Secondly, buyers should determine if their total monthly housing cost is lower than 28% of their gross monthly income. Lenders often consider a mortgage affordable if the monthly payment is 28% or less of the borrower’s monthly gross income. However, it’s crucial to calculate whether the mortgage fits into the overall budget, taking into account other major expenses like daycare and groceries.
The third question Sethi poses is whether buyers have saved a 20% down payment. According to Sethi, not having saved a 20% down payment indicates that one is not ready to buy a house. While it’s possible to be approved for a mortgage with a smaller down payment, saving more can lead to better loan terms and affordability.
Next, Sethi advises buyers to consider their reaction if the value of their house goes down. While homes generally appreciate in value, market trends can be unpredictable, making it difficult to sell. It’s important to be prepared for the possibility of a decrease in value.
Lastly, Sethi emphasizes the significance of being genuinely excited about buying a home. If buyers feel any sense of dread or pressure to jump on a deal, they should reconsider their decision. Making a home purchase solely because renting seems less desirable or due to external pressures is not advisable.
It’s important to note that while Sethi provides valuable advice, it’s essential to consult with a professional financial advisor who can assess individual situations and goals. Taking advice from online experts should be done with caution, as their background and expertise may vary.
