One Step Back, Three Steps Forward for Homebuyers
June 10th, 2009
Categories:Home Buyer Education, Real Estate News
According to the Census Bureau, one in eight adults between 25 and 34 years old are currently living with their parents. Money Magazine states “unemployment for people in their early twenties now touches 14%, vs the national average of 8.5%.” The rest of the article gives parents tips on how to handle the situation when children move back in, here’s the quick and simple of it:
- Don’t baby your babies
- Do help with the job hunt
- Do assist in exit planning
What about today’s homebuyers out there looking for a way to save money for a down payment? Wouldn’t this be an excellent opportunity to save money, pay off credit cards and possibly get a good idea of what home ownership would look and feel like?
If your a future homebuyer thinking about taking a step back by moving in with the folks, plan on taking three steps forward while you are living with the family again.
The Three Steps Forward
- Step 1: Pay off the credit card debt
- Step 2: Start saving for the costs involved with buying a home
- Step 3: Live in the shoes of a homeowner, you might be surprised at what you realize
Step 1: Pay off the credit card debt
Step 1a: Educate Yourself on the Cost of Credit Card Debt
Have you ever done the math on interest rates and credit card debt? Here is an example. Lets say your credit card balance is $10,000 with an 18% interest rate and you only make the minimum payment of $250 (2.5% of debt). It will take you 382 months to pay off the debt, or a lovely 32 years! When its all paid off, you will have paid $14,615.46 in interest. Does that make any sense to anyone? Here’s a calculator to figure out the true cost of paying the minimum amount on your credit card.
Here are some additional Debt Management calculators
Step 1b: Create a Plan and Start Taking Action
High interest rates on credit cards may seem the like the norm. After all, how many of us shop around for credit cards with lower interest rates? Here’s a great article on getting a lower interest rate; often all it takes is a phone call. Remember, you’re paying them a hefty interest payment each month, they’ll want to keep you around if possible. Want a Lower Rate? Just Ask!
Here’s another great tool. This tool will help you determine the fastest and cheapest ways to pay down your debt. Debt Pay Down Tool.
Step 2: Start Saving for the Future Costs of Buying a Home
Step 2a: Educate Yourself on the Costs of Buying and Owning a Home
The days of 100% mortgages are long gone. Every now and then we hear about them coming back, but lets not waste anyone’s time by counting on it.
Instead here are some practical but baseline costs of buying a home
- Down Payment – 3.5% of the purchase price
- Loan Costs – 1% of the purchase price
- Additional Fees including Title fees and pre-paids – 1-2%
If you are looking to buy a $200,000 home, the costs can easily hit $12,000. There are still many other costs involving utilities, house hunting, possible rent and mortgage payments, etc., but the three above are the biggies.
What about owning a home? Here are the big ones to consider.
- Mortgage Payment – $200,000 @ 5.25% and 30yrs = $1,105
- Monthly Costs Including: HOA, Utilities, Cable, Insurance, Taxes – Up to $600/mo
- Home Maintenance Costs – Plan to Save $100/mo
Step 2b: Create a Plan and Start Taking Action
A favorite quote of mine by Alan Lakein is “Failing to plan is planning to fail.” Mix that one in with Henry Ford’s “Failure is the opportunity to being again, more intelligently” and you get two great quote to keep in mind as you create plans and begin taking action. At some point in time you will fail, as nobody is perfect. All that matters is you remember the goal in mind and you keep trying and you keep learning. Here’s a free tool recommended by The Wall Street Journal. Its in a beta phase so enjoy it while it lasts! MySpendingPlan.com
Step 3: Live the Shoes of a Homeowner
The hardest thing for first time home buyers to determine is the type of home they want. Many have an image of a big home, lots of grass and a pool in the back yard. However, when they come to realize the amount of time involved in maintaining a home, many home buyers have a change of heart. You will save yourself a lot of time by figuring out early on what you really like about home ownership.
Here are the three most common home buyer types
- The Entertainer
- The Work-aholic
- The Home Improver
The Entertainer
The entertainers are the ones that really enjoy having friends and family over for get-togethers and functions. Typically they look for large yards, pools and open floor plans. If you’re moving back in with the folks consider taking on the roles and responsibilities below.
- Yard Maintenance
- Pool Maintenance
- Aesthetic Upkeep in the House (paint, washing floors and windows, dusting, etc)
- Home Owners Insurance Policies
The Work-aholic
We know who we are. We are the ones with zero time available to take care of the yard let alone the house. Work comes first, it pays the bills, etc, etc. However a home is like a slow growing child; it too needs its fair share of attention. As the first time buyer moving in with the folks, consider learning about and helping out with the major maintenance items. Also take the time to learn about the costs involved with each project. Here are some roles and responsibilities to consider taking on.
- Heating and Cooling Maintenance
- House Painting
- Roof Repairs (Leaks, Old Age)
- Insect Control
- Carpet Replacement
- Fixture Upgrades/Repairs
The Home Improver
The home improvers are the ones that like to do handy work around the house to improve the quality of living in the home. I’m personally a big fan of these types of projects, however I find it hard to make time for these types of tasks. Really the goal of any home improvement is to make a small (or large) and unique improvement in the home that really enhances your quality of living.
Here’s an example. I love cooking and when I get in the kitchen I can easily be there for several hours. To really enjoy cooking, I need (OK, I want) three elements; a good recipe, open bottle of red wine, and music. I’ve been using a decent quality stereo setup in the room across the kitchen, but it just wasn’t perfect. So last weekend I installed two new speakers in the kitchen. It took the better part of the day, but now I have really great sounding music in the kitchen to listen to while I cook, which makes cooking all the more enjoyable and allows me to enjoy the house that much more.
Here’s a list of projects or ideas to get you started. Keep in mind the folks will greatly appreciate the work, and they might swap your rent payment for labor.
- Add Speakers in More Rooms
- Look for new technology and devices that will enhance everyone’s quality of life. The Logitech Squeezebox Duet is a favorite of mine.
- Consider going “Wireless” in the house
- Backyard Lighting
- Landscaping Projects
- Remodel a Bathroom, Kitchen or Shower
- Here’s the best site for Home Improvement Ideas
Wrapping it up
Moving back in with the folks doesn’t have to be a bad thing. In fact, it might be the best move you make to; get on your feet, start saving money, begin learning about home ownership, and create a tighter relationships with your parents.
Related posts:
- The 8 Phases of Stress for Homebuyers
- Top 10 Myths Shared by First Time Homebuyers
- Time's Quickly Ticking for the $8,000 Home Buyer Tax Credit
- 4.5% Home Loans Help, Hurt or Just Silly?
- Get 22% off Your Next Home! (seriously)