Am I Actually Thinking About Buying A Home?!
Wow. I can’t believe it! So many crazy twists and turns have transpired this year – from moving, to relationships, to overcoming a pandemic. The 2020-2021 year span has been a rollercoaster for us all. But it’s allowed for some interesting things to occur…
How many of you out there moved during the pandemic? Maybe to a place with more room, that was more affordable, or stayed with family?
I, for one, never thought I’d see myself back living in Tampa, Florida (my hometown). But it just made sense for the time being with work; and was truly amazing to be so close to my family again. Then I started to realize how much Tampa had grown. It’s hardly recognizable from the city I knew when I was little. The restaurants, bars, attractions, and, of course now, the real estate have all blossomed.
When I left NYC, apartment buildings were offering 2 months free rent for a 1 year lease and 3 months free for most 14 month leases! How could you pass that up? But I did in exchange for a new experience and quality of life. Now, don’t get me wrong, that’s not to say I’m not moving back to NYC sometime soon, but I realized that that doesn’t mean I still couldn’t INVEST in something here! I already had savings, but I had accrued some additional income during the time I spent with my family. I realized I had saved up enough to buy a really nice, small home, townhouse, or 2 bedroom condo here in Florida. But where do I start? What can I REALLY afford without stretching myself too thin? I had no idea how to begin.
Here are some things I’ve learned:
- Zillow is your friend. I can spend hours on that app looking at all my potential new homes. (FYI – It works way better on mobile as the app as opposed to the desktop option. You can save all your faves, and have them handy to show when your friends ask. :))
- Get your taxes in order! I am an independent contractor and this part has been a mess. I have W2s, 1099s, etc. from multiple employers as a DJ, Singer, and Actress. It looks like since I don’t have one FULL-TIME job, that I am going to have to do an average of my last two tax years. (My accountant and I have become close buddies over the last few weeks. lol)
- Know some simple terms that will come up again and AGAIN.
- PMI – PMI stands for Private Mortgage Insurance. You are usually required to get this unless you can put 20% down on your house upfront. What are the pluses and minuses? Well, not having an extra bill is definitely a plus, but if you are putting a lot of money down and you happen to be someone who likes investing your money, then you might actually be loosing out on those opportunities to invest your cash (in the stock market for example) and actually make MORE than what your PMI would be every year.
2. Debt to Income Ratios – Front End Ratio V. Back End Ratio
When deciding whether to extend a mortgage, lenders consider the debt-to-income (DTI) ratio more important than having a stable income, paying bills on time, and having a high FICO score. (See more at www.Investopedia.com) I had no idea about this! I thought credit was everything when I started this process.
Front End Ratio measures how much of a person’s income is allocated toward mortgage expenses (including HOA, annual real estate taxes, and your PMI if you didn’t put 20% down). All of this is divided by your gross income (before taxes).
Back-End Ratio measures how much of a person’s income is allocated to all other monthly debts. It is the sum of all other debt obligations divided by the sum of the person’s income. Other debts commonly include: student loan payments, credit card payments, and non-mortgage loan payments.
Ok, so all of this is great. But how do I figure out these ratios for my finances, and what is an ACCEPTABLE ratio? That’s when I found a SUPER useful tool called www.Mortgagecalculators.info. They can help you calculate all sorts of figures you will need when buying a home.
The Florida market is definitely a sellers over a buyers market today. There isn’t a ton of inventory since so many people are moving here and prices have gone up. But whether I decide to buy now as an investment or hold off until I find my dream home, I am so happy to have found these tools and to have learned more about the overall process.
I am currently in the midst of getting pre-approved, but all of these resources have helped me to be “in-the-know.” Hopefully you’ll find them useful as well! Till next time friends! Maybe one of my upcoming posts will be about my BRAND NEW HOME!