Q: Should I buy a house now?
A: Because you should never buy a house when you are not sure that is what you want to do, and you should never let someone else make that decision for you. Don’t EVER give anyone that much power over your life.
As part of our exuberant expectation of CHANGE, I will be starting a series called “First Hundred Days”. It’s not enough to vote for change and then sit around waiting for change to come from someone else. If each of us does something different every day for the next hundred days, that produces a change for the better…then change will happen.
I will tag all posts “First Hundred Days” and I will do my best to include all of the tools and skills you should employ to make your own decision about buying a home. We hear so much about “the stupidity” of people in trouble. Instead of criticizing, let’s do our best to help the future buyers of homes make better decisions and choices by providing meatier, education oriented, instructional blog posts.
The first step in the home buying process does not start at the lender or the real estate agent. It starts with you sitting in your own home working through some numbers.
1) Calculate your gross income. If you are salaried, you have the number. If you are commission based or hourly, add the last 12 months income to the previous 12 month income and divide by two. Now double check it by taking the last 3 months income and multiplying it by 4.
Let’s say you are hourly or salary plus commission/bonus. Note these are not lender guidelines. These are old-fashioned and proven standards for responsible decision making and so will likely be more conservative than lender guidelines.
Non-salaried income Last 12 months: $75,000
Non-salaried income previous 12 months $60,000
Current annual income for home buying purposes = $75,000 plus $60,000 divided by two or $67,500.
Now the double check.
Total income for the last 3 months = $14,000 (boss gave you fewer hours)
$14,000 times 4 (12 months) = $56,000.
The double check system suggests that you should not think about buying a home in the near future based on an income of more than $56,000 a year, and you should not buy a home until you are certain that the cut back in hours is not leading to no job at all or even fewer hours. Stabilize your income situation before buying a home.
If the last 3 months income is $20,000 times 4 or $80,000, you still use $67,500 as your annual income and not $80,000, for homebuying purposes.
You use the average two year income or 4 x your latest 3 month income, whichever is LOWER.
I’ll stop here and see if people have questions before going to the next post in the “First Hundred Days” series. When you buy a house…if it is the wrong decision…you can blame lots of people, but you will be left holding the bag. So let’s work together over the next hundred days to make sure you can answer the question for yourself without heavily relying on the opinion of others.
Treat the series like a workbook, get a notepad, and calculate your numbers. Questions? Ask them in the comments section.