Budgeting for homeownership in 2022, by Briana Frazier.

Homebuyer Checklist: Budgeting for homeownership in 2022 in Riverside

By Briana Frazier

The state of California is known to be the golden state of opportunities yet many of its residents are far from thriving. In fact, statistics show that many are living in poverty from paycheck to paycheck. That would also mean that quite a significant number of the residents here are not homeowners. According to a 2017 report by Making Ends Meet, the basic cost of living in many parts of the state is way more than many single individuals or families can expect to earn even if all adults were working full time. Such conditions would mean budgeting for homeownership is out of reach for many people.

BUT IS IT DOABLE? YES!

Setting a realistic homebuying budget in the state of California, more so in the County of Riverside is one of the most important steps toward being financially conscious to own a home. The Census Bureau notes that the median household income between the years 2016 and 2020 was $70,732 while the per capita income during the same period was $29,913. At the same time, the Bureau reports that of the basic monthly budget, housing costs and utilities take up about $2,000- $2,200 a month!

This means, that 35-39% of the household’s income is going to housing which is way more than the recommended 30%. Therefore, even before you start to think of buying a home, it is important to understand the economics of it, where you are financially, and whether it suits you to buy now. But that aside, if your budget allows it, now would be the perfect time to buy especially after the fact that inventory is on the rise.

SO HOW DO YOU BUDGET FOR HOMEOWNERSHIP IN RIVERSIDE COUNTY?

One of the most important steps is having a clear plan in mind.

Buying a home is a wise decision but;

• What property are you interested in? • Where do you want to buy it? • In what timeframe? • For how much? • How will you finance this ambitious plan?

Do you see where I am going with? Buying a home is one of the most emotional processes people make and you cannot get it wrong the first time! Chances are, in your lifetime, you will never make such a huge purchase ever again. So why not take the time to think this through?

One of the factors to really consider is how much of the property you can afford. To do this, I recommend you multiply your annual gross income by 2.5.

*note: We are taking the gross income (what you make before taxes).

In the Riverside County this adds up to;

• the gross income is about $6,252*2.5 = $15,630 (this estimate is not conclusive)

Considering your monthly contributions, you may want to stretch yourself and here, I would advise you to apply the 28% Rule.

Basically, this rule dictates that your mortgage payments should not be more than 28% of your gross income each month. Going by 2017 standards, a household was paying about $2,200 in housing alone which is more than the recommended percentage. If we apply the same model to determine your contribution to housing in 2022, that would equate to $1,750. The question that remains is whether you are comfortable paying this figure without feeling the stretch.

Moreover, you have to factor in any other debts you might be having before calculating your monthly mortgage payment.

Now that you have a clear picture of what you can afford, now we can address the question of down payment.

There are so many factors that have to be considered. For instance;

• Your mortgage type. • Credit history.

And so much more. Basically, the down payment ranges from 3-20% of the purchase price of the home.

I ADVISE YOU TO RAISE THE FULL 20 PERCENT… BUT WHAT IF YOU CAN’T?

If you cannot pay the full 20 percent down and you financing your property through a conventional lender, you will be required to have private mortgage insurance (PMI) which is payable monthly. This adds up to your monthly contributions.

That however doesn’t mean you should panic! In fact, there are people who have come to me with zero down payment and they are enjoying the full benefits of homeownership today. If you would like to get help, get in touch with me today. Essentially, it is important that you speak with your agent and or lender to get the best option available that would be tailored to your financial position. If you need help saving for a down

START HOUSE HUNTING

Let’s recap, you have a plan in mind, and you know how you will finance the house.

So the next step is to find your dream house. Ideally, I believe that you have taken your time to look at the properties you may be interested in. if not, online listings should guide you. This way you get a feel of what the market looks like and whether the odds are in your favor.

Another way you can expedite this process is by working with a real estate agent. They know their markets better than anyone else. They know where the best gems are hidden and I also think it’s cheaper to work with a real estate agent. You will save a lot of time rather than finding the home yourself. Another great place to start would be referrals from family members and friends. Try asking around from your colleagues at which point if they suggest a property, engage with the real estate agent. Finally, don’t let minor imperfections in an otherwise great home discourage you from making an offer. You can always make changes later.

Assuming that you have found the dream property, it is time to get your finances in order. Some of the most important things I suggest my clients look at are their credit history, their credit scores, and their debt to income ratio. All these factors have a great impact on this process and will determine whether you get financing and who you get it with. It is important, therefore, to make sure that your financial health is in top shape. If it is, shop around and get a lender that offers you the best terms.

When you do, make the loan application. Your lender can pre-approve your loan amount, but if, as you wait, do something that alters your credit history, the loan can fall through. Additionally, have a second mortgage lender you qualify for if your loan with the first lender falls through. At this point, you have the finances in order and are ready to go ahead with the purchase. Congratulations. Many people will go ahead and make the offer to the sellers but I suggest exercising caution here. Before making any offers to the seller, re-examine the budget. Engage your lender and really find out whether this is the best deal. Establish whether you can afford the home even if things go wrong.

The reason I suggest this is because I have seen people get led by emotions and ended up making some really poor choices. Again, engage your agent when making the offer. They know just how much to offer on a property. With the current bidding wars in Riverside, it will have to be your best offer. Your real estate agent will present your offer to the seller’s real estate agent.

CLOSING

When the home inspection reveals no major defects with the home, you can agree with the seller to fix or slash the amount they are selling the house to you. If they agree, you will then enter the closing process, where you will sign the paperwork. Your lender will perform an appraisal of the home; you will need to do a title search and get another loan if your down payment is less than 20%. This process is not set in stone and may fall through, so hold your breath.

Buying a home you can’t fully afford can be your worst nightmare. When you are looking to buy a home, you should look beyond the monthly mortgage payments. Other expenses do crop up and can take a toll on you if they were not prepared. It is, therefore, important to prepare a budget where you take into account your debt-to-income ratio. A high ratio is an indication that you can’t afford the home. You may decide to take a second job or even wait until you are ready, and that’s okay.