"Dear Ami" is Steward’s money advice column. Submit questions here.
I’m thinking about purchasing my first house some time this year or next. I’ve spent hours on Redfin and Zillow checking out houses and years dreaming about my first home. But with crazy home prices and rising interest rates, I feel like I might have the worst timing.
Is buying a good financial decision in today’s market? How much home can I afford without throwing off the rest of my finances? Where should I save (...or should I be investing) the down payment? And should I be getting a 30 year fixed mortgage or some other fancier mortgage type?
This is probably the most “adult” decision in my life so far. I’d love to get a 3rd party gut check.
Stressed Home Alabama
In this week’s advice column, we guide Stressed Home Alabama through the big five decisions of a home purchase:
(1) should you buy a house?
(2) how much house can you buy?
(3) where to save up / invest for a house?
(4) which mortgage type to choose?
(5) how to stand out from a crowd once you find your dream house?
TLDR: there are financial rules of thumb on whether to buy vs. own, you can ballpark how much home you can afford using the 3/30/30 rule, if you’re looking to buy in the next year or two it’s best to save in a high yield savings account, but for a home purchase 3-5 years out you could invest the downpayment in a 30/70 (stock/bond) portfolio, and the standard 30-year mortgage often isn’t the best choice.
This guide is focused on buying a home for YOU to live in vs. buying an investment property that you rent out (that topic deserves its own blog post - stay tuned).
Table of contents
Dear Stressed Home Alabama,
First off, know that you’re not alone in feeling stressed. This current housing market is unusually confusing, for lots of reasons—rising interest rates, low home supply, record-high home prices. And the combination of inflation and a rocky stock market making future planning trickier.
On January 7th, 2021, the 30-yr mortgage rate was 2.65% and average new home price in the US was $401,700. As of June 2022, the 30-yr mortgage rate is 5.78% and average new home price is $570,300. Assuming a 20% down payment, that's a 106% increase in the monthly payment (from $1,294 to $2,671)!
Boilerplate advice online can feel wildly off-the-mark for folks living in high-cost cities (“welp!”). And it can be tough to trust your mortgage lender (“buy more house!”, realtor (“buy more house!”), and even your own emotions (“that kitchen!”, “our future nursery!”) as you make the biggest investment of your life.
My prior role as a white-glove wealth advisor to ultra high net worth families, involved a lot of time unwinding wealthy people out of real estate decisions they regretted. I’ll share the common mistakes (including my own) that I’ve seen families make so you can avoid them.
Below, you’ll see that we answered each of your questions in a separate blog post. Home buying is a huge, overwhelming topic that we felt deserved to be broken down in digestible bites. So dive on in, and learn all about the big 5 when it comes to decisions about a home purchase.
The Big 5 Home Buying Decisions
To Buy or Not to Buy a Home?
How Much Home Can I Afford?
Where Should I Save Up For a Home?
How to Approach Financing Your Home Purchase
How to Make Your Offer Stand Out in a Crowded Market
Interested in learning more about whether a home purchase is right for you and how you can best save for it?
Steward ‘s mission is opening up the 1%’s wealth strategies to America’s up-and-coming families with a combination of 21st century tech and trusted advisors. We help families determine how, where, and when to invest and save on taxes in plain-English, with minimal time and effort. Steward can help you determine if a home purchase makes sense, how much home you can afford, and how to invest and save in the most efficient way. Give it a try here.