Buying a house is a major life goal for so many people. If you ask most teens and adults for the things they want to achieve in life, they will say that they want to purchase a house. Unfortunately, house prices have been increasing, and it can be hard for a person to get the funds together for a house – let alone an expensive purchase such as a $280,000 home.
In this guide, we will go over some of the factors that you may need to consider if you are looking at buying a $280k house – from the down payment to interest payments and percent.
What kind of house does $280000 get you?
House prices vary a lot both over time and from location to location. You could easily find that the same purchase price could get you a nice, large house in Kentucky, or it could get you a smaller, less desirable property in California. This means that it is important to think about your budget for the area that you want to live in.
Fortunately, there is a lot of data about US house prices available online. This can help you make an informed decision about how much to save up, what price to expect, and when you can finally start looking for a house to own.
When is the best time to buy a house?
The best time to purchase a property is when you know you are financially and emotionally ready. It is foolish to get any property before you know you can afford it. Most financial experts suggest that you should have at least three months’ worth of expenses saved up, though some suggest having six months’ worth of expenses or more in your savings accounts. This is considered a required safety net before buying a home.
It is also sensible to make sure that you can afford every expense and payment easily before buying a home – this is vital because it ensures that you should not have trouble when the first unexpected repair payment comes in, and you need money to cover any taxes associated with buying the property. You also need to make sure you can find funds for all the other aspects of life, from personal expenditures to business or commuting costs. Every payment should be accounted for.
If you think you are ready to purchase a home and enter the property ladder, you can check your plan with a financial advisor. If you do not yet think you are ready or if you want to take more time to save up and plan, it is worth looking at our guides on how to save money, whatever your career path is. It takes some dedication, but almost anyone can find some ways to save towards their dream home – even people who work shifts or work primarily for tips.
The finances of buying a home are of course one of the most important parts – especially with an expensive choice like a $280000 home. Within finances, there are several things to look at, most of which will be common to most people, but some of which can come as a surprise.
Do I need a mortgage to buy a home?
No, you do not necessarily need to take out a mortgage to finance a home. If you have enough money saved up to purchase a home outright, you can take this route. You could also consider finding loans from friends or family, but mixing relationships and finances can have catastrophic effects – there are too many stories out there for sisters and brothers or children and parents falling out due to financial dealings.
Mortgage interest vs savings interest
Another important thing to look at when considering getting a mortgage is whether or not you would be better off buying the home outright. Even if you have the funds to purchase a property, you may still find that it is best to get financing if you are likely to need some of those funds for emergencies or home improvements.
However, it is usually the case that the interest rate on a mortgage is higher than the interest rate on a savings account – basically, if you had the money for your $280,000 home in a saving account with an annual percentage rate of 2 percent interest and take out a mortgage at 3.5 percent interest, you would end up paying more interest on the monthly payment than you would gain from your savings – in this case, the results would be better focusing on getting rid of the high percent interest rate debt.
House cost – how much can I borrow with my salary?
There is of course the question of how much money someone can borrow in a mortgage. Most financial providers will let people borrow around four or five times their annual income. In order to afford a 280,000 house, the salary needed would be around $70,000 per year. Of course, if you are buying a property with a partner, their income should also be taken into account for this calculation. If you know your salary amounts, you can easily use a calculator to determine what size of financing you would likely be able to qualify for.
Parts of a mortgage payment – the down payment and the monthly payment
If you have decided to go for a mortgage, there are a few different aspects of the financing to consider – primarily these are the down payment, or deposit, and the monthly payment.
What is a down payment?
A down payment is also known as a deposit. This is the amount of capital that you initially put towards the property. Saving up for the down payment is a challenging thing for a lot of people, but it is important to save up a deposit to make sure that you can find multiple mortgage brokers who can offer you a mortgage deal.
How much should my downpayment be?
The exact amount of the mortgage downpayment needed changes from bank to bank, and most banks offer different mortgage options which have different down payment amounts required.
Most financial advisors suggest that you save up the largest deposit you can, assuming that you do not put yourself into financial hardship or debt in order to do so. Generally, the higher the down payment you put forward, the better interest rate offers you will get.
Most banks offer mortgages as long as the borrower has five percent or higher saved up as their deposit.
Can I get a mortgage without a deposit?
Some banks still offer mortgages without a down payment, however, these are rare. If you get a property without a deposit, you may be required to have a guarantor or an asset to secure the loan.
What is LTV?
LTV stands for Loan To Value. This is a simple way of saying the value of the loan as a percentage of the total value of the property. For example, if you wanted to purchase a $280,000 house and had a downpayment of $20,000, you would be paying roughly seven percent as a deposit. The other 93% would have to be covered by a mortgage – this is your loan amount. In this case, your Loan To Value is 93%.
How do interest rates affect my monthly mortgage payment?
As with most other kinds of loans, a mortgage has an interest rate. The interest rate percent for mortgages is always discussed before you sign the paperwork, but there are various ways that the interest on your mortgage loan can work. Most financial advisors suggest that as well as reading the paperwork that shows what your monthly payment would be, people should get a calculator and check which of the various options may be more beneficial in the long run. A low monthly payment may not be the best deal after one year, two years, or more, or it may require a large down payment which people would struggle to get.
Fixed interest rates
Fixed interest rates are a common option for people. At a fixed rate, the interest rate percentage on your home loan does not change for a set period of time. Fixed interest rate loans have a loan length that is set for a number of years. Most commonly this is between five to 30 years, but there are some options that fall outside of this range.
Variable interest rates
A variable interest rate is where the interest percentage changes depending on the national base interest level. The interest rate could go up or down over time. While fixed a fixed interest rate offers consistency, there is a chance that a variable interest rate could be less than the fixed amount. It could however be more expensive, and your total payments could come to more in the long run if there is an increase in interest rate.
How long should a mortgage be?
There is no single answer for how long to pay off a home. Working out how many years it will take to pay off a mortgage is different for every person. Some people want to settle off their home payments in as few years as possible, while some want a longer period as this helps keep each monthly payment lower – however, this works out that the loan amount will have more percentage added to the principal over time.
What if I fail to make a mortgage payment?
It is vitally important to make sure you are financially able to cover the payments for your home loan before you purchase a property. This is because if you fail to make all of your required payments, the property could be seized by the bank and sold to cover the remainder of your home loan.
Should I get mortgage insurance?
Mortgage insurance can help you pay off your home loan to the bank even if you lose your job or have other financial problems. However, insurance can add a significant cost to your outgoings, so it is wise for people to consider the cost before getting insurance.
Is mortgage debt bad?
Debt for buying assets is considered ‘good’ debt. However, it is still important for people to find the best deal for their needs. Finding a good APR will help to mean that you end up paying less for your total mortgage costs over the principal amount of the loan. It is also sensible to make sure that the monthly payments can be easily afforded for the whole duration of the loan length.
If interest rates are low, some people also consider looking at a refinance deal if they have another property. This allows you to get a loan that is taken out against the original property and people purchase a second property with the cash provided by the remortgage. However, this also leads to a situation where the original property could be at risk if the borrower fails to pay the bank promptly.
Choosing where you want to live
There is also a variety of financial implications to where you choose to live. Picking an area can be difficult, as you need to consider both emotional or leisure aspects as well as practical aspects.
Employment opportunities in the area
Employment opportunities are a big factor. If you get a property in an area with better wages, you may find you can borrow a larger amount from the bank, or you can simply have an easier time paying it off. However, you need to consider taxes such as income tax or property tax.
Schooling is a vital aspect to people, and looking at generational financial wellbeing includes making sure that the next generation has good schooling – the result of good schooling is ideally that children can support themselves well as adults. However, properties in areas with the best schools are often more expensive.
While not as tied into finances, being in an area with the kind of social life you want is important, and to many people, it can be more important to salary.
The costs of living in an area without the facilities you want
Every time you fill up a car gas tank, you spend cash. Every plane journey or bus journey adds to your living costs. It is important to balance both work and social life commuting, as well as balancing property costs with the costs of living your life in that area.
Costs of renovations
Another factor to consider when buying a $280,000 home is how much renovation work it may need. It is not good to purchase a $280,000 home and then pull out the calculator and realize there is no money left to make it the type of property you want to live in. This is especially important for areas where a $280,000 home may be run down or small and may need extensive work. There is of course the option to spread this over your first year or two – or even more – living in such a property, as long as the property is in a livable state during that timeframe.
Is it your dream home, or is it a temporary purchase?
Of course, renovating a property may not be of vital concern if it is intended as a temporary property. Nonetheless, it is vital to make sure that, after your purchase price or downpayment and repayments, you at least have the funds to make sure the property has no safety issues.
Buy to Let options
Buy to Let properties are becoming more popular. Some people purchase a property and rent it for a while, while some people may purchase a $280k house purely as an investment.
Buy to Let mortgages
It can be harder for people to get mortgages for investment properties. This is because rental properties are seen as higher risk than primary residences – if people cannot afford the monthly payment for both properties, it is usually the investment property that they default the payments on. Because of this, banks are more selective about the terms of their rental mortgages and check their clients more thoroughly. Often the interest is higher, and the down payment needs to be higher too. All of this means that you will end up paying more on top of the base principal cost for an investment property. Luckily it is still possible to increase a down payment in order to keep each monthly payment low. General advice is that housing investment buyers should aim for a down payment of at least 20 percent in order to get the best deals. If this down payment is not achievable, investment buyers may need to go to specialist banks.
Buying a property is always a difficult task. There are so many aspects to consider – types of loans, down payment vs monthly payment, as well as just working out what bank loan amount you can afford or the salary needed to afford a certain property.
To get started on all of this, it is worth getting out a calculator. Determine your finances, your expenses as a percentage of your income, and any other factors.
You can also seek out professional financial advisors – as the people make it their business to give advice on loans or finance matters, they can take provided details and give advice which is likely to have high accuracy and can give good results.
Of course, we have plenty of other articles to read about mortgages on our home financing page, where all the provided information is designed to give you an insight into property purchasing. Follow the link and get your calculator handy to work out the best way you can look at property ownership.