Tips & Advice

Now that the housing market is gaining steam, especially among millennials, experts are throwing out a bit of caution to potential first-time home buyers, urging them not to make one very common mistake.

According to a new report by CNBC, it’s fairly common for first-timers to overestimate what they can afford in a mortgage, forgetting to take into consideration interest, taxes and insurance – and that mistake can be very costly.

“It’s a good idea to get pre-approved for a mortgage loan so you know how much a bank is willing to lend you before you make an offer on a home,” suggest reporter Landon Dowdy. “But keep in mind that the amount you’re pre-approved to borrow from a mortgage lender may be more than you can actually afford once you factor in taxes, insurance and other costs like condo or homeowners’ association fees and maintenance. As a general guideline, your total monthly payment (including mortgage principal, interest, real estate taxes and homeowners insurance) shouldn’t exceed 28 percent of your gross, or pretax, income.”

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For many retirees, the idea of giving up their family home is a tough proposition to accept. But according to Steven Sass, a research economist at the Center for Retirement Research at Boston College, that’s exactly what’s needed for many individuals to afford retirement.

“People have a serious behavioral resistance to touching their savings or home equity in retirement,” Sass told CNBC. “We think a lot more retirees need to think about using their house for income.”

According to the latest University of Michigan Health and Retirement study – conducted in 2010 – the average household entering retirement has a net worth of just over $300,000, including their home.

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While it’s true that Baby Boomers in their 50s and 60s are currently carrying much more mortgage debt than their parents did at their age, some experts says that’s OK.

As Greg McBride, chief financial analyst at Bankrate.com, tells CNBC, these boomers don’t necessarily need to rush to get rid of their mortgage debt in order to afford retirement.

“Money tied up in the home is illiquid, and prepaying a mortgage makes no sense if you’re not maximizing your tax-advantaged retirement savings options, including catch-up contributions,” he said. “Money in the bank will pay the bills, home equity will not.”

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CNBC released a new video on Thursday, listing the top eight tips for selling your home this spring.

As reporter Diana Olick points out, de-personalization and small improvements are key.

Up first, remove personal photos and replace them with faceless artwork. Next, a new front door typically produces a great return on investment. In the kitchen and bathrooms, small improvements go a long way. Clean and de-clutter surfaces in every room. Consider staging some of the main rooms in the home if you’ve already moved your furniture out. Keep rooms cool. Fix cracks in any major or minor structural area. And last but not least, update your curb appeal.

Image via flickr/Ian Muttoo

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