When it comes to Real Estate, I’m a fan of the 2/25 rule: You are ready to buy when you have 2x the down payment saved and your mortgage payment is 25-35% or less of your monthly net income.
Why follow this rule?
1. Hidden Homeownership Costs
Many families forget about the hidden costs of homeownership. While it is important to save for the down payment, this alone is not sufficient. Closing costs, renovation, and home furnishings can be a costly part of the home-buying process and it is necessary to have a safety net to make sure you can afford all of the expenses that may be involved. Saving 2x the down payment will ensure you do not deplete your savings when purchasing a home.
2. Hope for the Best — Prepare for the Worst
Life happens. If an emergency or sudden loss of income occurs, you should be prepared for it. Keeping your payment within 25-35% (or less) of your monthly net income is a great way to make sure you can afford your home, regardless of what life throws your way. This will also provide you the budget flexibility to save for other goals and enjoy your life in the process.
Whether it’s real estate or the stock market, don’t try to time the market. Invest when YOU are ready!
Samuel Shinn, MBA
Wealth Strategist
Samuel.shinn@lpl.com
856-437-9294
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.