According to MinnPost and Rent Jungle, the average rent for a studio apartment in Minneapolis & St. Paul is right around $750, a one bedroom around $950, and a two bedroom is around $1200. These prices have certainly grown over the past years! Bottom line: It has become harder to find good rental housing that you can afford.
Many moons ago, I was a first time home buyer. When I purchased that first home on 3558 2 1/2 St in Minneapolis, I had a lot of fears: Can I afford this, is this the right thing to do, and so many, many more. Funny story, I answered people when asked about being on a half-street, "I can't afford a full house"!
Additionally, I didn’t have a Facebook newsfeed scaring me with “prices are rising, there are no homes on the market!”, either. So really. Is it a good time to purchase your first house? Is this year the year to make a move?
I've pulled together scenarios below and have a lot of resources for you to check out. In short: Don't be intimidated by the news. While inventory is low, it's still a good time to find your first home!
Let's dig in and start thinking about payments and budgets, and I've linked to helpful resources that can help you with your research.
Scenario 1: $150,000 condo with 20% down
Here's an estimate for a monthly payment. Assuming you have decent credit, a 4% rate on a 30-year mortgage, you'll be right around $600 a month. Yes, you read that right. And if you add an extra $50-100 to your mortgage a month, you can see equity even quicker. Heck, it's already cheaper than rent :)
Here's where you might be saying, "OK, Kim, that's great. I don't have 20% down!".
Are you familiar with an FHA loan? The FHA is an organization that works with buyers, and it can be a great way to help you into your first home. You can bring as little as 3.5% down to an FHA loan. However, you will need to pay mortgage insurance. Look at it this way: If you are purchasing a home now, you are gaining equity that has long-term effects to your overall portfolio. If you waited until you had the full 20% down to avoid the insurance, you’d lose the several years of equity you’ll gain by taking a small hit on the insurance.
Scenario 2: $150,000 condo with 3.5% down
Same selling price, different down payment. In total, you’ll likely be bringing $5-6000 to closing and you’ll end up with a monthly payment around $750. Add in a few hundred for association fees, taxes and insurance, monthly living expenses such as cable and wifi, and you're around a grand a month. Still thinking about renting that 2 bedroom apartment for $1200 a month without any included utilities?
I hope I've gotten you to review your current situation and see that, In spite of the scare-tactic-click-bait articles saying there is no inventory, there are indeed options for first time home buyers.
My tips for anyone thinking about buying their first home are pretty straight-forward:
Do your research. Talk to your tax preparer and have an intro conversation with a mortgage broker.
Add a little parameter around your 5-10 year goals.
Talk to a realtor. We aren't scary. We are here to help :)
Watch for housing trends and keep an open mind.
Start having conversations early. A good mortgage broker and realtor can help you prepare financially, even if you are a few years away from taking the plunge.