Navigating Home Ownership – Part 1, Planning

| April 02, 2019
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With a growing family this past year, my wife and decided to sell our first home and buy a place with a little more space. Along the way, we did some things right and some things that were valuable “learning lessons.” So as we settle into our new home this month, I’ll share with you all what we learned.

Planning

Before contacting a realtor, it’s wise to plan for a few things.

  1. Talk to your financial advisor – (Okay, shameless plug) Ask them -
  • How will this purchase change my other goals?
  • How will my taxes change based on the sale of my home and/or purchase?
  • Should I change my saving and investment strategy to accommodate the purchase?

 

  1. Consider “How long will I be in the home?”
  • I commonly suggest not buying unless you are confident that you will be there for 3 to 5 years. Because of the transaction fees related to selling your home, it is difficult to beat renting during a shorter time frame.

 

  1. Consider “How much of a mortgage can I afford?”
  • 28-36% of gross income for your mortgage payment. While banks have become better at determining affordability, don’t just go with what they tell you. They often have not factored in any charitable giving, higher than average health insurance premiums, family assistance, and your specific standard of living.

 

  1. Consider “How much home can I afford?”
  • Typically 2.5X Income - Now that you know how much of a mortgage you can afford, you can take the cash available from the sale of your home or saved and add that to it. If you have significant savings, it’s not advisable to push it all into a home just because you can afford to do so. Because of this, 2.5X income is the rule of thumb.

 

*At this point, I also start taking note of what is coming in by mail. In the rest of this series, I will tackle address changes but it’s a good time to take inventory of your mail.

Disclaimer: Alex Voorhees and Reston Wealth Management do not provide legal, accounting, realty or tax advice. This information is not intended to be a substitute for specific individualized legal, realty or tax advice. We suggest that you discuss your specific situation with a qualified investment, tax or legal advisor and/or licensed realtor.  The opinions voiced in this article are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) or strategies may be appropriate for you, consult your financial advisor prior to implementing a strategy. No strategy assures success or protects against loss. You should consider the investment objectives, risks, charges and expenses of any investment carefully before investing.

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