Can I afford to buy a house?

Summary

Life Kit Podcast Summary: "Can I Afford to Buy a House?"

Podcast Information:

• Title: Life Kit
• Host: Marielle Segarra, NPR
• Episode: Can I Afford to Buy a House?
• Release Date: April 17, 2025
• Description: In this episode, Marielle Segarra delves into the complexities of homeownership, providing listeners with expert advice on determining affordability, navigating the mortgage process, and making informed decisions about purchasing a home.

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1. Introduction: The Allure and Reality of Homeownership

Marielle Segarra opens the episode by reminiscing about the board game "Life," where acquiring a house is a highlight. She juxtaposes this childhood excitement with the often daunting reality of actual homebuying, acknowledging that for many, purchasing a home feels unattainable.

Marielle Segarra [01:12]: "For a lot of us, buying a house feels out of reach. I've heard some of my friends instantly dismiss the idea, like I will never be able to afford that, at least not where I live."

To shed light on this topic, Marielle introduces Molly Grace, a seasoned mortgage reporter from Business Insider with seven years of specialized experience in mortgages.

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2. Assessing the Benefits and Downsides of Buying a Home

Molly Grace provides a balanced view of homeownership, highlighting both its advantages and potential drawbacks.

Benefits:

• Stability: Owning a home offers more stability compared to renting. Rent prices can fluctuate annually, and renters may face the uncertainty of needing to move.
• Wealth Building: As home values typically appreciate over time, homeowners build equity, which can be leveraged for future financial needs.

Molly Grace [05:07]: "One of the big benefits of buying a home is obviously the stability when you're renting. ... you are benefiting from your home's value growing over time."

Downsides:

• Responsibility: Homeowners are responsible for all maintenance and repairs, which can be time-consuming and costly.
• Financial Commitment: Purchasing a home often requires a long-term commitment, typically staying in the property for at least five years to offset the significant upfront and ongoing costs.

Molly Grace [05:43]: "You don't have a landlord to say, hey, my air conditioning is broken... everything is on you and that's time out of your day fixing stuff."

Marielle Segarra emphasizes that homeownership isn't a one-size-fits-all solution and depends heavily on individual circumstances.

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3. Financial Preparations: Understanding Your Readiness

Before embarking on the homebuying journey, it's crucial to evaluate your financial standing.

Key Considerations:

• Credit Score: A minimum credit score of around 620 is generally required, though this can vary based on the lender and mortgage type.
• Debt Levels: Lenders assess your debt-to-income ratio to ensure you can manage mortgage payments alongside existing obligations.
• Income Stability: Consistent and sufficient income is essential to secure a mortgage and maintain homeownership.

Molly Grace [07:09]: "Take a look at your credit score, your debt, and your income. ... typically, you'll need to have a credit score of about 620."

Down Payment:

• Minimum Requirements: While many believe a 20% down payment is necessary, some loans allow as low as 3% down.
• Closing Costs: These additional expenses can sometimes surpass the down payment, necessitating additional savings.

Molly Grace [08:27]: "Another thing I want to note too is you want to, in addition to your down payment, you also want to think about your closing costs."

Takeaway 1:
Evaluate whether your lifestyle aligns with homeownership. Consider if you're prepared to commit to owning for at least five years, handle maintenance, and seek the stability that comes with owning versus the flexibility of renting.

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4. Navigating Mortgage Options and Assistance Programs

Understanding the variety of mortgage types and available assistance can significantly impact affordability.

Types of Mortgages:

• Conventional Mortgages: The most common type, typically requiring higher credit scores and larger down payments.
• Government-Backed Mortgages:
  • FHA Loans: Favorable for first-time buyers with flexible credit requirements.

    Molly Grace [10:44]: "FHA loans are really popular, especially with first time home buyers because they have more flexibility."

  • VA Loans: Exclusively for military members and veterans.
  • USDA Loans: Designed for rural and suburban homebuyers.

Assistance Programs:

• State Housing Finance Agencies: Offer grants, forgivable loans, and competitive mortgage rates to promote homeownership.
• Lender-Specific Programs: Some lenders provide down payment assistance and help with closing costs.

Molly Grace [11:38]: "These programs are really helpful and I would recommend people look up your state's housing finance agency and see what they offer."

Takeaway 2:
Determine your loan eligibility and realistic affordability. This involves considering down payments, closing costs, monthly payments, interest rates, and potential mortgage insurance.

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5. The Homebuying Process: Searching and Securing Your Home

Once financially prepared, the next step is the practical search for a home.

House Hunting Tips:

• Expect to View Numerous Homes: The process can be time-consuming, requiring patience and persistence.
• Choose a Trustworthy Real Estate Agent: A competent agent can identify potential issues and guide you through negotiations effectively.

Molly Grace [13:30]: "My advice is to go in prepared to see a lot of homes. ... make sure you're working with an agent who you really trust and you get along well with."

Inspections and Negotiations:

• Home Inspections: Conducted post-offer acceptance to identify any underlying issues.

  Molly Grace [16:43]: "You want to schedule that as soon as possible after you have had an offer accepted."

• Contingencies: Contracts typically include clauses allowing buyers to withdraw if major problems are discovered, ensuring earnest money remains safe.

Molly Grace [17:19]: "If the inspector identifies major problems ... then yes, you can back out of the transaction and keep your earnest money."

Takeaway 3:
Anticipate viewing multiple properties and collaborate closely with a reliable real estate agent. This ensures you find a home that not only fits your budget but also meets your long-term needs.

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6. Budgeting for Ongoing Maintenance and Unexpected Costs

Homeownership extends beyond the initial purchase; ongoing maintenance is a critical component.

Maintenance Budgeting:

• Annual Allocation: Experts typically recommend budgeting about 1% of the home's value annually for repairs and maintenance.

  Molly Grace [17:58]: "Experts usually recommend planning to spend about 1% of your home's value every year on things like repairs or regular maintenance."

• Specific Needs: Larger properties or specific features (e.g., expansive lawns) may incur additional costs.

  Molly Grace [16:08]: "If something visibly looks like a fixer upper... you need to think about what is your budget for that."

Lifestyle Adjustments:

• DIY vs. Hiring Professionals: Consider whether you can handle certain maintenance tasks yourself or need to hire services, which affects your budget.

Molly Grace [18:28]: "If you want to hire professional landscapers to fix up your home every spring... that's something you're going to want to think about."

Takeaway 4:
Incorporate maintenance costs into your budget. Assess whether you have the time and resources to manage upkeep yourself or if you'll need to allocate funds for professional services.

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7. The Emotional and Social Dimensions of Homeownership

Beyond finances, buying a home carries significant emotional and social implications.

Personal Fulfillment:

• Freedom and Stability: Owning provides a sense of autonomy over your living space and a stable environment.
• Community Investment: Homeowners often feel more connected and invested in their local communities.

Molly Grace [19:10]: "For me, it was about the freedom to have my own space and just the stability of that."

Financial Empowerment:

• Wealth Accumulation: Homeownership can be a pathway to building long-term wealth through property appreciation and equity.

Individual Preferences:

• Not Universally Ideal: While many find ownership empowering, others may prefer the flexibility and lower responsibility of renting.

Molly Grace [19:10]: "It's different for everyone. There's no right answer for everyone."

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8. Recap and Key Takeaways

Marielle Segarra summarizes the episode's insights into four main takeaways:

1. Lifestyle Alignment:
   Assess if your current lifestyle supports the commitment of owning a home, including the willingness to stay for at least five years and manage maintenance responsibilities.

2. Financial Eligibility and Affordability:
   Determine your loan eligibility and understand the total costs involved, from down payments and closing costs to monthly mortgage payments and potential insurance.

3. Home Search Strategy:
   Prepare to view numerous properties and collaborate with a trustworthy real estate agent to identify a home that fits both your budget and personal needs.

4. Maintenance Budgeting:
   Plan for ongoing maintenance costs and consider whether you'll manage them personally or need to hire professionals, adjusting your budget accordingly.

Marielle Segarra [22:34]: "Remember, homeownership is not for everybody, but if you feel like it's for you, it might be within reach."

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9. Conclusion

The episode "Can I Afford to Buy a House?" offers a comprehensive guide for prospective homebuyers, blending financial advice with practical tips and emotional considerations. By understanding the multifaceted aspects of homeownership, listeners can make informed decisions that align with their financial capabilities and personal aspirations.

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Notable Quotes:

• Molly Grace [02:11]: "You might be able to, especially if you have a little bit of money saved up and if you qualify for a low down payment mortgage..."
• Molly Grace [09:07]: "They can include things like your title insurance, origination fees..."
• Molly Grace [12:37]: "The best thing that you can do is shop around with a few different lenders, get quotes from them and see who can offer you the lowest rate."

---

Credits:

• Produced by: Claire Marie Schneider
• Visuals Editor: Beck Harlan
• Digital Editor: Malika Garib
• Supervising Editor: Megan Keane
• Executive Producer: Beth Donovan
• Production Team: Andy Tegel, Margaret Serino, Sam Yellowhorse, Kessler, and Sylvie Douglas
• Engineering Support: David Greenberg

For more insights, explore other Life Kit episodes on budget management and home decoration at npr.org/LifeKit.

Transcript

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[Marielle Segarra]

[e-mail] credit card you're listening to Life Kit from NPR. Hey everybody, it's Marielle. When I was a kid, I used to play the board game Life a lot, and one of my favorite parts was seeing what house I was gonna get. Would it be a cute country cottage with a large yard and a garden, or a grand Victorian with a library and a marble fireplace and a wraparound porch? Of course, sometimes life didn't work out that way and I couldn't afford a house at all. Sound familiar? Yeah, the game's a little less fun when you're older and this is your actual life. For a lot of us, buying a house feels out of reach. I've heard some of my friends instantly dismiss the idea, like I will never be able to afford that, at least not where I live. Well, Molly Grace is a mortgage reporter for Business Insider. She's been writing specifically about mortgages for seven years.

[Molly Grace]

I would definitely not just say, you know, right out of hand, I can't afford to buy a house. You might be able to, especially if you have a little bit of money saved up and if you qualify for a low down payment mortgage, maybe even with some down payment assistance, it definitely could be a possibility for you.

[Marielle Segarra]

Now I should say homeownership is not right for everybody. It depends on your circumstances and where you live.

[Molly Grace]

And I don't think everybody should necessarily just buy a home just because that's what the conventional wisdom tells you to do. You know, does it fit in with your lifestyle? Do you plan to stay in the same place for about five years or more? You're putting in a huge investment when you buy a home, so you want to make sure that it actually suits you and it's not just something you're doing because you feel like you should do it.

[Marielle Segarra]

On this episode of Life Kit, I talked to Molly about how to know whether you can afford a house, the process of figuring that out, finding a real estate agent and a lender, and choosing a place you can see yourself calling home.

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[Marielle Segarra]

The benefits of buying a home?

[Molly Grace]

One of the big benefits of buying a home is obviously the stability when you're renting. Your rent payment could go up every year or you could end up having to move. And you're also benefiting from your home's value growing over time so, you know, home values tend to rise over time, which means you get that money back in equity when you own the home. And you can tap into that and potentially use that money for other things, which is why people always say owning a home is really good for wealth building.

[Listener]

What would you say are the downsides or commitments that come with owning a home?

[Molly Grace]

Yeah, so when you own a house, you don't have a landlord to say, hey, my air conditioning is broken, or hey, you need to fix this. Like, everything is on you and that's time out of your day fixing stuff. That's money out of your pocket. And it can potentially be a lot of money. If you don't want to stay in the home for very long, if you want the flexibility of being able to move around a lot, maybe for your job or just your lifestyle or whatever, you really need to stay in the home at least a few years to kind of recoup all the costs that come with it. Because there are a lot of upfront costs and ongoing costs that come with owning a home. So if you're not willing to stay in it for, you know, at least five years, they usually say you can end up losing money.

[Marielle Segarra]

All right, takeaway 1. Ask yourself if your lifestyle fits with buying a home right now. Are you willing to own it for at least five years? Will you be able to make repairs and do maintenance on the place or pay someone if necessary? Are you looking for stability? You'll get more of that when you own a home than when you rent. Your monthly payment will be locked in unless you have an adjustable rate mortgage and you can change the space without needing a landlord's approval. But maybe renting gives you the freedom you want right now, or you're not sure what neighborhood you'd want to buy property in. Be honest with yourself about where you're at.

[Listener]

What do you need to know about your finances before you start this process?

[Molly Grace]

So I would take a look at your credit score, your debt, and your income. So your credit is going to be a big factor here. Lenders want to make sure you know that you're not too much of a risk. Typically, you'll need to have a credit score of about 620, but it varies. And then you're also going to need to have a manageable level of debt. So lenders will look at how much you earn every month before taxes, and then how much you're spending every month on things like credit card payments, your student loan payments, your auto loan payments. And how could a mortgage potentially fit into that, and if you have too much debt, you could be denied a mortgage because you don't want to go over a certain threshold.

[Listener]

Typically.

[Marielle Segarra]

Right.

[Listener]

People will put a down payment on a house and Maybe that's like 10% or 20% of the total cost of the house, and then they'll take on the rest as a loan. And that's a mortgage, Right?

[Molly Grace]

Right.

[Listener]

How do you know what kind of down payment you can afford and also what kind of down payment you should put down versus just taking it on as a loan?

[Molly Grace]

Yeah, totally. So a lot of people think you need 20% down or a really large down payment to get into a home. That's not necessarily the case. Many loans now allow as low as 3% down, which, you know, depending on your home price is still can be a lot of money. But the difference between 3% down and 20% down is huge. And one thing I want to note too is you want to, in addition to your down payment, you also want to think about your closing costs, because those can be quite high. When we bought our house, actually we paid slightly more in closing costs than we did in our down payment. So you're going to need some savings to be able to make it happen.

[Listener]

What are closing costs?

[Molly Grace]

Yeah, so it depends on the details of your purchase. They can include things like your title insurance, origination fees. So your lender may charge you a fee just for kind of the service of making the loan to you, and that can be a substantial cost. You may have to have to prepay some of your property taxes or your homeowner's insurance, basically all of the fees that you incur as part of the process of originating and closing on your loan.

[Listener]

Okay, so yeah, you want to factor that in too. How can you figure out how much house you can afford? So that includes a down payment and the mortgage over time.

[Molly Grace]

Probably one of the best things you could do is talk to a lender, you know, go to your local lender and just like, seriously, like, go in person or call them and just say, hey, like, do you think this is possible for me? Like, should I, Should I bother? And they'll tell you, and they'll tell you if there are programs that would be able to help you close the gap and make it happen.

[Marielle Segarra]

Takeaway 2. Figure out whether you're eligible for a loan and how much house you can realistically afford. There's a lot to factor in here, including your down payment, inspection costs, title insurance, which tells you that the person who's selling the home actually owns it. Closing Costs your monthly payment, including interest, property taxes, and possibly mortgage insurance, which is a policy you're required to take out if your down payment is below a certain threshold. It's there to protect your lender in case you can't pay your mortgage.

[Listener]

Okay, what different kinds of mortgages are there?

[Molly Grace]

So there's conventional mortgages, which are kind of the most popular type. Most people go for these. But there's also government backed mortgages which are FHA loans, VA loans and USDA loans. FHA loans are really popular, especially with first time home buyers because they have more flexibility. So you can get potentially qualify with a credit score as low as 580. If you have a larger down payment, you could potentially go even lower than that. So those are really helpful for first time home buyers or people whose credit is maybe a little rockier. VA loans are specifically for military members or veterans. And then USDA loans are available to people in rural or suburban areas.

[Listener]

Are there any other deals for first time home buyers?

[Molly Grace]

Yeah, absolutely. So a lot of individual lenders have programs. They'll give you money for your down payment and your closing costs. There's also every state has a housing finance agency. These are geared towards promoting home ownership. They all have programs that can help people get into a home. And a lot of them do offer down payment assistance, either in the form of grants or sometimes they'll have forgivable loans. And they'll also have assistance for your closing costs as well. And maybe, you know, mortgages with competitive rates. Those programs are really helpful and I would recommend people look up your state's housing finance agency and see what they offer because that's a really great way to potentially get money for your home purchase.

[Listener]

A big part of how much you're gonna pay every month with a mortgage is interest rates. And where those are at right now, how can people think about interest rates as they're going through this process?

[Molly Grace]

The best thing that you can do is shop around with a few different lenders, get quotes from them and see who can offer you the lowest rate. Apply for pre approval with a few different lenders. People can save a lot of money doing that and a lot of people don't do it because it can be kind of a pain. But not every lender is going to, you know, offer you a great rate or the lowest rate or whatever. You want to do some comparison shopping because you might be surprised. You could save quite a bit of money by getting multiple quotes.

[Listener]

Okay, so let's say you get pre approved or you have a sense of how much it's going to cost you. And now you're looking on Zillow or you're working with a real estate agent to find a home. What should you think about when you're going into this process and you're looking at house after house?

[Molly Grace]

My advice is to go in prepared to see a lot of homes. It can take a while to find a home and get your offer accepted, so you may need to try a few times. So be prepared for that and make sure you're working with an agent who you really trust and you get along well with. I think that's really important. You want to be realistic, but you also want to find something that you're going to be happy with because you're spending a lot of money doing this. Right?

[Listener]

Yeah.

[Molly Grace]

This is where having a really good real estate agent comes in is they can really, as you go through the home, look at things and go, I don't know about that. Or kind of looks like there might be some water damage here, stuff like that. They'll be on the lookout for that even before you put an offer in. Because once you do put an offer in, you can have the home inspected by a professional licensed home inspector, which is very important. But before you put an offer in, your real estate agent is going to have those professional eyes to be looking and thinking like, you know, is this the right fit for you? Is this going to be a good long term investment? Are there maybe issues or concerns with the home because you don't want to buy something that's right away going to need a bunch of repairs and cost you a bunch of money? Because that's, I think that's one of the big fears with buying a home is that all of a sudden you have this huge financial crisis on your hands because of your home takeaway.

[Listener]

3. As you begin the search, expect to see a lot of homes and find.

[Marielle Segarra]

A real estate agent who you trust and really get along with. You should also make sure they're licensed in your state.

[Listener]

How do you decide when it's worth it to buy? Like a fixer upper?

[Molly Grace]

Yeah. So I would say if something visibly looks like a fixer upper and just seems really like you're going to need to put a lot of work into it, I would be very hesitant. Those are often best left left to the professionals. Now, as a first time home buyer looking at starter homes, you might be looking at older homes because those tend to be more in people's price ranges. They are probably going to need some work and you need to kind of think about what is your budget for that. You know, ask a lot of questions. How old is the roof? How old is the H Vac? When we moved into our home, we had to replace the air conditioner pretty quickly, and that was pretty expensive. But we went into it knowing that the air conditioner was past its lifespan and that was something we might have to do.

[Listener]

Like central air sort of thing.

[Molly Grace]

Yeah, yeah. And it was expensive. Yeah. So that's something that you really want to think about and just kind of pay attention, especially the big things. You know, the roof is a big one. That can be a big expense if you have to replace it. Pay attention to cracks on the walls in the basement or wherever. You know, you want to watch out for foundation issues. Look out for the really expensive ones, because it could be just an easy fixer upper. It could be something that requires, you know, you to take out a huge loan to take care of.

[Listener]

And when you get an inspection, when does that come in the process?

[Molly Grace]

So you want to schedule that as soon as possible after you have had an offer accepted. So typically you'll have a clause in your contract that says you have a period of time to get the house inspected. It can vary how long this is, but it's usually not a super long period of time. So you want to get the inspection scheduled as quickly as possible so you can get someone out there potentially within a few days to look at the home.

[Listener]

Okay. And if there are big problems with it, then you can back out.

[Molly Grace]

Yeah. As long as you have that clause in your contract that you have that inspection period, someone can come out and look at the house. And then, yes, if they are, if the inspector identifies major problems that you weren't aware of when you looked at the house and made an offer on it, then yes, you can back out of the transaction and keep your earnest money.

[Listener]

Is it important also to budget for maintenance, monthly maintenance, like if you're moving from, let's say, an apartment that you rent into a house with a lawn, then you might have to start thinking about lawn care. Can you do that yourself, or are you going to have to pay for a landscaper or something like that?

[Molly Grace]

Yeah, absolutely. So that is definitely something that you'll want to think about. And I think experts usually recommend planning to spend about 1% of your home's value every year on things like repairs or regular maintenance for the home. It varies from year to year. You don't always spend that much. Maybe some years you spend a little more. Maybe some years you Spend less. But yeah. And especially if the property has, like, specific needs, like, oh, we have a really big yard. We're going to need to buy a riding lawnmower.

[Marielle Segarra]

Then.

[Molly Grace]

Yeah, that's something that you're going to want to budget for. Or maybe if, you know, you want to hire professional landscapers to fix up your home every spring, like, that is something you're going to want to think about. So, yeah, as you're, like, looking at houses, that can especially be helpful to think about is what are the other costs that are going to come with this takeaway 4.

[Marielle Segarra]

Don't forget to budget for maintenance. When you take on a new home, you may also be changing your lifestyle. Ask yourself, will I have the time to mow the lawn or plant the garden or clean the house, or will I need to hire someone to help? If you're buying an apartment, think about what fees you might have to pay for maintenance of common areas.

[Listener]

Molly, what do you think buying a home represents to people?

[Molly Grace]

For me, it was about the freedom to have my own space and just the stability of that. I feel more connected to my community. I feel more invested in it and in its longevity and its success as a homeowner. I think for some people, it just can feel like a good financial investment. You know, often it can be. It depends on the home. But, you know, as home values rise over time, you benefit from that investment and it's potentially a source of wealth that you can tap into or that you can, you know, help your family with, you can help your kids with. You know, it can potentially be really empowering to own a home and to, you know, feel like you achieved something financially and you put roots down in a place that is important to you and matters to you. So I think there's that. But, you know, it's not. I always like to say, I don't think that it's necessarily a thing for everyone. And I think you can feel just as empowered and just as invested in your community as a renter. There's a lot of renters out there and there's no right answer for everyone. It's different for everyone.

[Listener]

Thank you so much for this.

[Molly Grace]

Absolutely.

[Marielle Segarra]

Okay, recap time. Takeaway 1. Ask yourself if your lifestyle fits with buying a home right now. Are you willing to own it for at least five years? Will you be able to make repairs on the place or to pay someone if necessary? Are you looking for stability? You'll get more of that when you own a home than when you rent. Takeaway 2. Figure out whether you're eligible for a loan and how much house you can realistically afford. There's a lot to consider, including your down payment, inspection costs, title insurance, appraisal costs, closing costs, monthly payment including interest, property taxes and possibly mortgage insurance. Takeaway 3 as you begin the search, expect to see a lot of homes and find a real estate agent you trust and really get along with. And takeaway 4 don't forget to budget for maintenance. Think about whether you'll have time to mow the lawn or plant the flowers or clean this much bigger house, or if you're going to need to hire someone to help. And what is that likely to cost? And remember, homeownership is not for everybody, but if you feel like it's for you, it might be within reach. For more Life Kit, check out our other episodes. We have one on how to make a budget and another on how to decorate your home. You can find [e-mail] LifeKit and if you love Life Kit and want even more, subscribe to our [e-mail] LifeKitnewsletter Also, we love hearing from you, so if you have episode ideas or feedback you want to share, email [e-mail] this episode of Life Kit was produced by Claire Marie Schneider. Our Visuals editor is Beck Harlan and our digital editor is Malika Garib. Megan Keane is our supervising editor and Beth Donovan is our Executive producer. Our production team also includes Andy Tegel, Margaret Serino, Sam Yellowhorse, Kessler and Sylvie Douglas. Engineering support comes from David Greenberg. I'm Marielle Segarra. Thanks for listening.

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