Life Kit - Can I afford to buy a house?

Episode Date: April 17, 2025

Buying a home can feel out of reach for many. But if you're an aspiring homeowner, there are ways to make it a reality. In this episode, mortgage reporter Molly Grace explains how to know if you're financially ready, what costs to budget for and how to find a home that works for you.Learn more about sponsor message choices: podcastchoices.com/adchoicesNPR Privacy Policy

Support for NPR and the following message come from Yarl and Pamela Mohn, thanking the people who make public radio great every day and also those who listen. Support for NPR comes from the PsySims Foundation, since 1985, supporting advances in science, education, and the arts towards a fairer, more just, and civil society. More information is available at psyysimsfoundation.org. 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 is 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 of like, I will never be able to afford that, at least not where I live. While Molly Grace is a mortgage reporter for Business Insider, she's been writing specifically about mortgages for seven years. 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. Now I should say, home ownership is not right for everybody. It depends on your circumstances and where you live. 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. 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. Support for NPR and the following message come from Yarle and Pamela Mohn, thanking the people who make public radio great every day and also those who listen. Support for NPR comes from the PsySims Foundation since 1985, supporting advances in science, education, and the arts towards a fairer, more just, and civil society.

More information is available at psysimsfoundation.org. Molly, what are the benefits of buying a home? Society. More information is available at scisimsfoundation.org. Molly, what are the benefits of buying a home? 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. What would you say are the downsize or commitments that come with owning a home? 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 wanna 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. All right, take away one. 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 not sure what neighborhood you'd want to buy property in. Be honest with yourself about where you're at. What do you need to know about your finances before you start this process? So I would take a look at your credit score, your debt, and your income. So your credit is gonna 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. Typically, right, 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? Right. 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. 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 depending on your home price, can be a lot of money, but the difference between 3% down and 20% down is huge. 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. What in closing costs than we did in our down payment. So you're gonna need some savings to be able to make it happen. What are closing costs? 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 homeowners insurance, basically all of the fees that you incur as part of the process of originating and closing on your loan. 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.

Probably one of the best things you could do is talk to a lender. You know, go to your local lender and just like, you 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 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. Takeaway two, 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. Okay. What different kinds of mortgages are there? 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 qualified 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. Are there any other deals for first-time home buyers? 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 homeownership

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. A big part of how much you're going to 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?

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 gonna, 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. 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? My advice is to go and prepare 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 wanna be realistic, but you also wanna find something

that you're gonna be happy with, because you're spending a lot of money doing this, right? This is where having a really good real estate agent comes in. As you go through the home, look at things and go, I don't know about that, or it 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 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 three, as you begin the search expect to see a lot of homes and find a real estate agent who you trust and really get along with You should also make sure they're licensed in your state

How do you decide when it's worth it to buy like a fixer-upper? Yeah, so I would say if something Visibly looks like a fixer-upper and just seems really like you're gonna 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 homebuyer 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. Ask a lot of questions. How old is the roof? How old is the HVAC?

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. Like central air sort of thing? Yeah, yeah. And it was expensive. Yeah. So that's something that you really want to think about and just kind of pay attention to, especially the big things. 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. And when you get an inspection when does that come in the process? So you'll want to schedule that as soon as possible after you have had an offer accepted. And typically, 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. Okay. And if there are big problems with it, then you can back out? 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 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. 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? KATE BOWMAN Yeah, absolutely. So that is definitely something that you'll want to think about. And I think experts usually recommend planning to spend about one percent 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 specific needs like, oh, we have a really big yard, we're going to need to buy a riding lawn mower, then yeah, that's something that you're going to want to budget for. Or maybe if you want to hire professional landscapers to fix up your home every spring, that is something you're going to want to think about. So yeah, as you're looking at houses, that can especially be helpful to think about is,

what are the other costs that are gonna come with this? Takeaway four, 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. Molly, what do you think buying a home represents to people? 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. Thank you so much for this. Absolutely. Okay, recap time. Takeaway one, 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 two, 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 three, 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 four, 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, home ownership is not for everybody, but if you feel like it's for you, it might be within reach. For more LifeKit, 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 those at npr.org slash LifeKit. And if you love LifeKit and want even more, subscribe to our newsletter at npr.org slash LifeKit newsletter. Also, we love hearing from you, so if you love LifeKit and want even more, subscribe to our newsletter at npr.org slash LifeKit Newsletter. Also we love hearing from you, so if you have episode ideas or feedback you want to share, email us at lifekit at npr.org.

This episode of LifeKit was produced by Claire Marie Schneider. Our visuals editor is Beck Harlin and our digital editor is Malika Gareeb. Meghan Kane is our supervising editor and Beth Donovan is our executive producer. Our production team also includes Andy Tagel, Margaret Serino, Sam Yellowhorse-Kessler, and Sylvie Douglas. Engineering support comes from David Greenberg. I'm Mariel Segarra. Thanks for listening. Support for NPR and the following message come from Yarle and Pamela Mohn, thanking the people who make public radio great every day and also those who listen. Support for NPR comes from the PsySims Foundation since 1985, supporting advances in science,

education, and the arts towards a fairer, more just, and civil society. More information is available at psysimsfoundation.org.