Is now the time to buy a house

Many of our clients come into the office asking us if now is the right time to buy a house since they may get a first time home buyers credit of $8,000 and there are some real deals out there. Well let's unpack buying a new home. The average home that sold in Stark County last year went for 199,000, down from the average in 2007 of $218,000. This would make the average monthly payment for a 30 fixed with 20% down ($40,000) at 5% at $858.91 plus tax and insurance and a 15 year fixed loan at 5% at $1265.27. If we add an additional $250 a month for taxes and insurance this would come out to $1108.91 a month for a 30 year mortgage and $1515.27 for a 15 year mortgage. Not too bad.

The average family in Ohio make around $48,000 a year. If we account for taxes, they bring home around $3,000 a month income. You can see the problem starting to develop. We recommend that your house payment including insurance and taxes should be between 25% and 31% of your take home pay. If we would take out the 30 year mortgage, the payment would eat up 37% of our take home pay ,while the 15 year mortgage would eat us 50% of out take home pay.

This is why the average family is struggling to survive and get ahead. Think about it. The average family brings home $3000 a month and the average house payment is $1100 to $15000. This is if we put down 20% on the mortgage and do not have a second mortgage. 

Now add in the average car payment of $385 and a few credit card bills, a student loan and a second mortgage. We are now living paycheck to paycheck but have a nice house. There is very little margin to take care of an emergency if the roof needs repair, they put in a sewer line, the transmission goes out in the car or if there is a medical emergency.

There is a better way. We recommend that before getting a new home that you first pay off all of your credit debt including cars, credit cards and more. This way if something goes wrong and it always does, you will have extra cash laying around to fix it. We also recommend that that you put aside 3 to 6 months of expenses for an emergency fund.  

When taking out a loan you will get ahead if you do the following steps:

• Get out of all debt but your current home including student loans, cars and credit cards
  
• Set aside 3 to 6 months of living expenses
  
• Take out no more that a 15 year loan at a fixed rate
  
• Put down 20% as a down payment to reduce PMI and to get the payments affordable.
  
• Contact a seasoned real estate professional such as Michele Dugan (email michelle.dugan@yahoo.com) in the Canton area. Let them help you find the best house for you in the area for the best price.
  
• Contact a mortgage broker to get the best lending rates available. We recommend Jessie Pachan at Fearon Financial www.fearonfinancial.com.
  

By following these steps you will be weird. See, normal is broke, normal is paying 40 to 50% of your take home pay in house payments. Be weird, get a deal you can afford and live on less than you make. Don't be poor, house poor.

If you would like help putting together a plan to buy a new home, feel free to contact us to set up a free 30 minute consultation at Lighthouse Financial Counseling Services. www.lighthousefinancialcounseling.com

Share your comments and stories about houses with us. A friend of mine just refinanced from a 30 year mortgage at 7.5% to a 15 year at 4.5% and his house payment only went up $110 a month and he said he will have his house paid off in 12 years by making an extra payment every couple of months. This is weird.