How to brace your budget for the DMV real estate market
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More DMV first-time homebuyers are stepping off the sidelines this spring, agent Michael Rankin says.
Why it matters: Even with mortgage rates dropping from 8% highs, some buyers might not be financially ready to lay down thousands of dollars.
What they're saying: Wannabe buyers fall into two camps, Domain Chief Financial Planner Katy Song tells Axios. There are people who are over-prepared or people who think they can afford more than they realistically can, she says.
Here are her tactical tips for making sure you're ready to buy, and determining what you can really afford.
💳 Look at your credit. If you don't have credit or it's not in good shape, it's not time to buy, she says. Your credit score determines how willing lenders are to give you money.
- If you're starting from scratch, Song recommends getting a secured credit card. To start building your score, put a recurring payment like Netflix on the card, and automatically pay it off every month. Never carry a balance, she says.
- There's no shame if you're in credit card debt — get aggressive and tackle it.
- You don't need to pay off your student loan debt or even car loans before applying for a mortgage.
💸 Calculate your maximum monthly payment. Generally, 28% to 32% of your net monthly cash flow is a safe bet.
- Reality check: Your lender will likely approve you for a higher mortgage than what you could comfortably afford, Song says. They're not factoring in recurring expenses like therapy, gym memberships or that oh-so-necessary pet subscription box.
💪 Build your savings and downpayment. Put away at least three months of expenses for emergency savings.
- For a downpayment, Song recommends at least 10-20% to keep your monthly payment comfortable, and start building equity as quickly as possible.
- Plus, more money down could get you that extra bedroom, for instance, even if it means having to save for longer.
The big picture: Inventory remains tight for buyers shopping this spring.
- America's housing shortage and high mortgage rates are a big focus of President Biden's as he makes his pitch for a second term, Axios' Emily Peck reports.
- Biden wants to give U.S. homeowners a $10,000 tax credit to sell their starter home.
- His plan also includes a tax credit for first-time buyers that amounts to $5,000 a year for two years.