This week…homeownership


Homeownership – The 20 Percent Rule


According to this rule, you should put at least 20% when buying a home.


Why It Works: It ensures you don’t spend more home than you can afford, it can lower your monthly mortgage cost, and it can increase your chances of being approved for a loan.


When It Doesn’t: While this is pretty traditional advice that’s a safe bet, opinions vary. Some consider it an overwhelming amount to save. Some argue that, while a home is an asset, you shouldn’t give up your liquidity, or savings.


Don’t buy a house that costs more than three years’ worth of your gross annual income. Some variations say no more than two years; others say two and a half.  So here are some factors to consider for calculating the home you can afford:

  • Take-home pay (after taxes, after tax-deferred retirement contributions).
  • All of your other debt (credit card, rent, car loans, etc.) (If you have high interest loans, you should pay them down before looking to buy a home.
  • Monthly payments (WASA, T&TEC, TSTT, etc.)
  • Consider your other priorities (children’s school fees, retirement)
  • Calculate your down payment amount. It might make more sense to save and wait.
  • Use a mortgage calculator to see how much you can afford (most financial institutions have these online).
  • Leave a cushion in your monthly budget between income and total monthly expenses.


But there’s a long list of expenses, including closing costs to consider.  And it all varies… so watch out for these closing costs when buying a home:

ü  Interest

ü  Insurance

ü  Lender Fees

  • Application Fees
  • Processing Fee
  • Credit Report Fee
  • Appraisal Fee

ü  Title Fees

ü  Attorney Fees


Yes, it’s overwhelming and confusing!  As one institution might advertise that it doesn’t charge an ‘application’ fee up front, for example. But it makes that up by charging a ‘commitment’ fee or ‘doc prep’ fee at closing.


Next week…why net worth is more important than income.


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