If you’ve never bought a home, just the thought of having to go through the process is enough to send you into a spiral. There are so many things to consider, questions to ask, and, of course, money you have to have.
On yesterday’s episode of the “Rachael Ray Show,” Rachael had the founder and CEO of LearnVest, Alexa von Tobel, who Rachael says does with finance what she tries to do with food– make it easy for everybody to be successful at.
Alexa came on the show to bust some money-saving myths and share her best tips for new home buyers– more specifically, the three questions you should ask yourself before you think about buying a home.
Question 1: Can I put at least 20 percent of the amount into a payment and still have 6 to 9 months of emergency funds left over?
According to Alexa, the common belief that a 20 percent down payment is required to get a good loan on a house is actually true.
“If you can’t put 20 percent down, maybe you shouldn’t be buying a house,” she said. “While legally, you can technically go get a mortgage earlier for less — under 20 percent — I don’t advise it because your interest rates are higher. And at the end of the day, you really want to be able to put down 20 percent.”
Question 2: Can I find something that costs no more than 2.5X my annual income?
“Take your salary or household income…multiply it by two and a half,” she said. “That should be the range of what your home value is.”
Question 3: Will the calculated mortgage be less than 35 percent of my monthly income?
According to Alexa, this is the key to making sure you can truly afford the home so you don’t find yourself underwater later.
“Just because someone is going to let you borrow the money doesn’t mean you can afford it,” she said.