Today’s buyers face demanding situations that make it difficult to budget for a home with a high-interest mortgage. With the emerging costs of real estate in the U. S. In the U. S. , it’s harder to cover the final costs, let alone the down payment. In February, the median down payment was $55,640, up 24. 1% from a year ago.
Rita-Soledad Fernandez Paulino, a private finance educator, settled for renting space for years with no set deadline for buying a home. In 2021, she and her husband changed course and decided to prioritize homeownership. They are on their way to buying a home that they can live comfortably in for years to come.
“I’m Mexican-American and in my family, acquiring a space is the number one priority,” said Fernandez Paulino, who attends the Soledad call.
Soledad says it’s a common sentiment in immigrant households. Especially for those who come from countries without a portfolio, owning a home is the key to creating wealth, the most valuable asset that can be passed on to the next generation. In 2021, Hispanic homeowners earned 66% of their home equity, compared to 41% for white households.
As a financial coach for more than four years, a member of CNET’s professional review panel, and the founder of Wealth Para Todos, Soledad strives to help BIPOC women and LGBTQ communities achieve financial independence. On a personal level, it is our minds made up to live the life you need while taking prudent steps to make such a massive investment.
“I think a lot of other people fail to manage their finances in a way that they perceive what they need their lifestyle to be, and then they add a huge loan to that,” he said. “It can be overwhelming for them. “
Based in California, Soledad is well aware of the high cost of living.
From their point of view, it’s better to hire for longer and start the home buying process with a strong monetary safety net, rather than rushing into buying a home that can become a headache later on. This means making sure they can afford the cargo. de homeownership in the long run.
Here are some tips that Soledad recommends you follow first if you’re going to buy a home.
Before saving for a long-term home purchase, Soledad advises paying off debt and building an emergency fund with about six months of living expenses.
At the age of 23, Soledad began teaching in New York City. Faced with pressure from her family circle to buy a house, Soledad opened a high-yield savings account and deposited the allowances she earned at her job. If he didn’t have an emergency budget or other committed budget to sink, he dipped into his savings when he went on a trip or needed to cover his expenses.
Things changed when a medical emergency forced Soledad to stay in bed when she was in her early thirties. During this time, he won a book on private finance. Although he didn’t agree with everything, especially the insinuation of monetary guilt, it was a smart position. to begin with and encouraged her to expand her own monetary education.
After creating her first budget, Soledad sought to get rid of her only debt. So he paid off $23,000 in student debt in 4 months. He then prioritized saving six months’ worth of living expenses into an emergency fund.
Having a well-stocked emergency fund will allow you to pay your monthly loan bills in the event of a job loss or medical crisis.
You don’t have to be debt-free to buy a home. However, having less debt will decrease your debt-to-income ratio, or DTI, allowing you to get a lower loan rate.
A 20% down payment is required to get a loan or buy a home, but that’s the number Soledad is headed towards.
With a larger down payment, Soledad can get a smaller loan and likely get a lower interest rate from her long-term loan lender. Plus, it means you’ll have a lot of equity in your home from the start.
A larger down payment can also make you a more competitive buyer, especially in real estate markets where stock is tight and bidding wars are the norm.
Soledad needs to keep her monthly long-term loan payment at $4,800 or less, which is what she will currently pay in rent. Using your current housing bills as a benchmark, you know you can comfortably pay this amount without having to cut back on other expenses. or dip into your savings.
While talking to a loan officer, Soledad learned that if she made a 20% down payment on an $800,000 home, her loan payment would be about $4,000 a month. That would be fantastic, but he couldn’t buy any homes in his Los Angeles community with an application. It’s worth a lot less than $1 million.
“Could I invest less money in a more expensive house?Yes, but then my loan payment will be higher and we will have to sacrifice other things like vacations or going out to eat,” Soledad said.
To calculate an overall value range, study the home value for the domain you’d like to live in. You may need to move more or downsize to stay within your budget. Especially if it’s your first time buying a home and you’re on a budget, be open to making concessions.
We’ve looked at how other down payment amounts can increase your long-term loan bills using CNET’s loan calculator. For this example, we use the same loan rate for each down payment amount. However, some lenders may offer higher or lower rates. depending on the amount of your loan.
Soledad needs to save enough money to cover all the prices related to buying a home, such as final prices and asset taxes, as well as furniture and long-term maintenance prices. After you include those expenses in your home purchase budget, you need to save at least $290,000 before you buy a home.
He even built his own calculator to determine if you can buy a home based on its value and the amount of money you’ve set aside.
Here’s a look at Soledad’s savings goals based on several other housing charges and a 20% down payment. (Since furniture charges vary from user to user, they’re marked as $0, but you can add this charge to the total amount needed. )
Soledad will use the magic of compound interest to grow the cash she sets aside in her high-yield savings account. But you don’t put all your cash in one place.
Soledad and her husband knew they had several years before buying a home, so they were comfortable not having all of their cash. However, if you want to streamline budgeting in your savings account, liquidity and ease of withdrawal are essential.
Once Soledad accumulated $10,000 in her high-yield savings account, she put cash into the stock market through a taxable brokerage account and contributed a total of $30,000 adding money monthly. While making an investment in the stock market is a riskier tactic, it can offer higher returns in the long run. The last time you checked, you had already earned a $4,000 return on your investment.
They have also benefited from Series I bonds, which lately pay interest at a rate close to or higher than some of the more sensible HYSAs. When you buy a Series I bond, its rate of return is fixed for six months. During this period, rates are recalibrated every two years to keep up with inflation.
I bonds are a smart choice if you don’t plan to use the budget right away: you possibly won’t be able to touch the coins for the first year, and if you mint your I bond before five years, you’ll lose three months of interest earned.
While you don’t want to spread your savings across multiple accounts, it can be a smart way to enjoy higher annual percentage returns and capitalize on higher returns on investments. Always your calendar. If you plan to use your budget in about a year, you shouldn’t tie up your cash in a certificate of deposit, savings bond, or stock market.
One of the main benefits of a more flexible budgeting strategy is preparation. Medical emergencies, missed tasks, and other life changes would possibly cause a small disruption to your schedule, but they don’t have to completely derail your plans.
When Soledad moved to California, she rented space from her mother and paid $1,400 in monthly rent. This left her with about $1,000 of extra money a month to focus on her savings goals.
When she moved into a new apartment, her rent tripled to $4,800 a month. With an emergency fund, Soledad didn’t want to dip into her savings to pay a higher rent. But that meant he had to suspend his contributions to buy a space. because he wanted cash to pay his rent.
“I knew we weren’t going through to get into debt, but I didn’t know if we were going through saving for a house,” Soledad said.
At that point, Soledad readjusted her budget and found that she and her husband deserve to focus as much as possible on expanding their income.
Saving for any major expense (especially buying a home) can take years. And that’s okay. But if you’re looking to speed up this process, finding strategies to increase your profits will have a bigger effect than simply cutting expenses.
“What has worked for us is increasing our income, while also making sure that we continue to enjoy our lives and that they seem sustainable,” Soledad said.
Soledad’s husband was assigned a new assignment at a publicly traded company, where he submitted limited inventory units, or RSUs, necessarily inventories from a company submitted as payment to employees.
The couple made a commitment: When Soledad’s husband won an IAU, they would win it, sell it, and put the budget into their down payment fund (after making sure their emergency fund was fully funded).
“That’s how we make a lot more money,” Soledad said.
Not all UAIs can be obtained right away. In some cases, it takes several years to obtain the rights.
There are other tactics to increase your income. Conaspectr is looking for a high-paying, low-stress business that fits your lifestyle, such as driving for a rideshare app or walking dogs.
When Soledad was introduced to the world of private finance, she discovered that many of the tricks came with shame and stigma.
“It made me feel like I could never leave the space or do anything while I was in debt,” she said.
But Soledad eventually developed a more compassionate and worrisome strategy for saving and budgeting. Its financial literacy and education platform, Wealth Para Todos, is committed to barriers to financial security for underserved communities, while empowering its clients on self-care and wealth building.
Their philosophy (that you can take control of your finances and still live your most productive life) applies to homeownership. Saving for a down payment (and all the prices associated with buying a home) doesn’t have to break the bank. Eliminating unnecessary expenses does. It doesn’t mean removing everything that gives you satisfaction from your life. Instead of looking to save and budget as a way to limit yourself, Soledad sees it as a way to better perceive the value of your money.
“Of course we’re going to spend money, enjoying life that way,” Soledad said.
When saving for a down payment, think about your short- and long-term money goals and priorities. Then, look at how homeownership can support those goals. Ask yourself: What can you do while you’re still gathering your savings, your retirement, and your non-expenses?-Public objectives?
Soledad is still thinking about buying a house, but she’s not in a hurry. She doesn’t need to surrender her life to a homeowner, nor does she need to end up in a space she can’t afford, which would push her to give in. up even higher.
“I’m 37 years old and I don’t have any properties, but I will be,” Soledad said. “I also know that with the skills I’m developing, I’m going to have several properties. “
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