I have good savings, a stable job, and a good salary. Should I buy a house?

February 21, 2019

Quick Answer.

Yes, if you have a credit score over 500, plan on keeping it for 5+ years, you can make a 20% down payment, and you can keep your combined debt payments (mortgage + other debts) plus your home utilities, maintenance, property taxes, and property insurance costs under 1/3 of your gross income.

This is why.

  • Homes have a high sales transaction cost. It typically costs about 3% of the home value to sell your home. That’s $3K for every $100K in value. So, you need to hold on to the home for a while to make up for the transaction costs. The more expensive the home, the longer it will take. Typically, buy a house if you plan on keeping it, at least, 5 years.
  • Putting less than 20% down is expensive. Unfortunately, most lenders will require you to have mortgage insurance if you borrow more than 80% of the home price. This is true not only with private bank loans but also with the Federal Housing Administration and other similar loans. The cost of that insurance can be an additional $150-$200 a month or up to 5% of your loan amount per year.
  • Primary Home interest is tax-deductible. Unlike rent, you increase the ownership of the home with each mortgage payment. Also, the interest portion of the payment is tax-deductible on the first $350K of your loan ($750K if married). This tax provision is subject to change each year, but it’s likely to remain in place. It can easily be worth $3K to $7K for the average person and home.
  • Consider your maintenance costs. If you have been renting, it is likely that you have not had to pay for taxes, home insurance, maintenance, or all utility costs (e.g. water, sewer, garbage, electricity, gas). As a homeowner, you will be responsible for all these expenses. Depending on your city, these costs can add up to 25% of your mortgage payment.
  • Lower credit scores mean higher down payments. Typically, banks will lend you more if you have a better credit score. For example, FHA loans will lend you up to 96% of the home value with a credit score better than 580 and up to 90% with 500.

Go further.

  1. How will my expenses change if I buy a home?
  2. How much home should I buy?

About Mogami. Our mission is to bring simple, creative, and effective financial assistance to everyone. No more hourly fees, asset minimums, long appointments, or financial jargon. Follow your own design, step-by-step, and see your future take shape. Beautifully. [Learn more]

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