Purchasing your first home is a tremendous financial commitment. There are a number of factors to consider before signing off on that long-term mortgage.

So, you’re looking to purchase your first home. Congratulations! It’s an exciting time, creating a safe and secure home for yourself (and perhaps family) while building equity in a long-term asset.

While selecting the right neighborhood and house are critical for long-term enjoyment, there also are a number of financial factors you should consider.

First, assess any prospective home purchase as a lifestyle investment. The real estate market can be volatile, with home prices fluctuating from year-to-year. If you’re not ready to settle down for more than a few years, you might want to consider postponing a home purchase as it might not generate the return on investment that you’re expecting.

Ready to settle down? Let’s first determine a price range.

How Much Can You Afford?

If you’re like most first time home buyers, you’ll be taking out a mortgage to purchase your home. In order to qualify for a mortgage, you should meet two common metrics: a housing expense ratio and a total obligations ratio.

• Housing expense ratio: This compares basic monthly housing costs (mortgage, insurance, property taxes) to the applicant’s gross monthly income (before taxes and deductions). The income includes anything you earn from work, along with pensions, child support, or alimony payments. As a very general rule, to gain approval for a mortgage, your monthly housing costs should not exceed 28% of your monthly gross income.
• Total obligations ratio: This is the percentage of the applicant’s income that is necessary to cover their total monthly payments — debt payments plus basic housing costs. These payments include student loans, installment loans, and credit card balances that exceed 10 months, all of which are added to the applicant’s basic housing costs and then divided by their gross income. This ratio should not exceed 36%.

Additionally, you will most likely need to make a down payment on your purchase, which can vary up to 20% of the home sale price. Generally, if you are able to put down 20% or more, you will receive a more favorable interest rate and avoid having to pay private mortgage insurance (PMI).

Closing Costs

That 20% down payment is significant, but that’s not all; there are closing costs, too (the amount necessary to finalize the purchases). These vary widely between 3% and 8% and include home inspection costs, prepaid interest (points), application fees, appraisal fee, survey, title, title insurance, attorney fees, among many others (some depend on the mortgage company). Depending on the home location, you may also have to pay transfer taxes.

Sample Costs

Operating Costs

Owning a home carries far more financial responsibility than renting. In addition to your mortgage payments and annual property taxes, you’ll pay for utilities, repairs, insurance, landscaping, trash removal, appliance replacement, repairs, and other items and services.

As for repairs, this is where the home inspection can be so important — it can point out any major infrastructure or appliance issues before you finalize a purchase price, allowing you to negotiate with the seller to address the concerns.

Once you’ve determined your price range and preferred neighborhood, the fun can begin and you’ll visit for sale properties. Remember: Just because you can afford a house doesn’t mean that is what it’s worth. It’s important to survey the values of nearby homes, especially those with similar layouts (bedrooms, bathrooms). The more informed you are as a purchaser, the more financially sound your decision will be in the future.

The post Purchasing your first home first appeared on Georgopoulos Wealth Management.

You’re finally ready to move up from your rental unit to your own home. Before you start searching for a home, understand how much money you’ll really need. Be prepared for the myriad expenses that you must add to the purchase price to see the whole picture.

Home ownership has several advantages over renting, including lower monthly payments, deductible mortgage interest, and the accumulation of equity. But there is a definite price to pay for these benefits, including the expenses we detail here.

• Owning a Home Has Financial Advantages, but Comes with Significant Costs
  While owning a home can be financially beneficial in the long term due to lower monthly payments compared to rent, mortgage interest deductions, and equity accumulation, there are substantial upfront and ongoing costs to consider. Buyers should be aware that these expenses extend far beyond the initial purchase price.
• Upfront Costs Include Earnest Money and Down Payment
  The two primary initial expenses are earnest money, which shows your commitment to buying the home, and a down payment that ranges between 3.5% and 20% of the purchase price. The mortgage will cover the rest of the cost, but buyers must be financially prepared for these substantial upfront payments.
• Numerous Fees Add Up Quickly
  Buyers must anticipate a variety of fees associated with purchasing a home, such as broker fees (up to 3%), mortgage origination fees (around 1%), inspection fees, and more. Prepaid interest, title company fees, and potential homeowner association fees are also common. All these extra charges can significantly increase the total cost of purchasing a home.
• Insurance and Taxes Are Unavoidable Ongoing Costs
  Homeowners are required to purchase insurance, including homeowners and potentially flood insurance, depending on the location. Additionally, private mortgage insurance (PMI) is often required if the down payment is less than 20%. Property taxes also factor in as another major, recurring expense.
• Move-in Costs and Immediate Repairs Can Be Costly
  Moving costs and unexpected repairs can add thousands of dollars to the expense of buying a home. Structural repairs, replacing systems like HVAC, or even expanding the home can incur major costs, which may not always be identified during the inspection phase. Planning for these potential costs is crucial.
• Financial Planning Is Essential Before Buying
  The article emphasizes the importance of having a solid financial plan before making the commitment to buy a home. It’s essential to know how much home you can afford while still being able to save for retirement and other major life expenses. Proper financial preparation will help ensure that buyers don’t overextend themselves.

The post Is Purchasing a Home a Good Investment? first appeared on Georgopoulos Wealth Management.

If you’re expecting your first child, establishing a budget that includes your growing list of expenses is important for helping you manage your finances.

Starting a family is one of life’s most rewarding experiences. However, it will also profoundly impact your financial picture, with a list of expenses that grows by the year. (One estimate pegs the total expenses for a child’s first 17 years at $336,616.)

As you begin planning for your first child, consider these key areas and their associated expenses.

Healthcare

One of the first steps you are likely to take prior to welcoming your child is to modify your healthcare plan to make sure that your baby is covered. You can choose a managed care plan, such as a health maintenance organization (HMO), which offers lower up-front costs but limits you to specific doctors and hospitals. A preferred provider organization (PPO) plan typically has higher monthly premiums than an HMO, but offers you the freedom to see any doctor or specialist—at any hospital—and often has lower co-pays than an HMO.

Deductibles, coinsurance amounts, copayments and monthly premiums vary greatly. Review the options available to you carefully before making your selection.

For those expenses not covered by health insurance, consider a medical reimbursement account (MRA) or health savings account (HSA), if available from your employer. These can pay for items such as deductibles, copayments, and orthodontics.

Childcare

You may be eligible to receive tax benefits as a parent, with the Child Tax Credit providing a credit of up to $2,100 per child under age 17 (as of 2022).[2] Part of the credit is refundable, which means that you could receive a tax refund (up to $1,400 per qualifying child) even if you don’t owe any tax.

To qualify, your child must have a Social Security number before you file your tax return.

Note that the credit is reduced for married taxpayers filing jointly if their adjusted gross income (AGI) exceeds $400,000, and for other taxpayers if their AGI exceeds $200,000.

Insurance

As you enter parenthood, consider the value of purchasing disability insurance or life insurance.

A financial professional may be able to provide guidance as to the recommended amounts of coverage for each. Some general guidelines include a disability policy that covers at least 60 percent of your income and a life insurance policy that equals 5 to 10 times your family’s annual income.

Check to see if your employer offers these policies because they are often less expensive than those that you purchase independently.

Estate Planning

Consider drawing up a will that designates a legal guardian for your child, in the event that you and your spouse die together (or if you are a single parent, if you should die). Without a will, if you and your spouse die together, a court will decide whom to appoint as your child’s guardian.

The will should apply to your future children, too.

By carefully budgeting for your baby, you can help secure the financial futures of both you and your child.

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