Arlington is one of those places where living isn't exactly cheap. Rents are high, condo fees are high, and taxes are anything but cheap. If you’re in the market for a new home, those prices can be downright shocking, with the median home price at more than half a million dollars. With home prices that high, literally every penny counts.
According to Bankrate, a 30 year fixed rate mortgage at half a million dollars and 5% interest will cost nearly $2,700 a month in payments, and that’s assuming you don’t plan on remodeling for the next 30 years. That represents a huge chunk of the average Arlington family’s income, which sits at just about $100,000, according to the US Census.
Now, before you start calculating how much caviar this family would be eating in a given week, bear in mind that median income figures are given in pretax dollars. In other words, that is the gross pay that family takes home before taxes are withheld from their pay so Senators and Congressmen can take helicopter rides. In case you were wondering, the tax rate for that income is almost 30%.
That means this Arlington family has about 30% of their income going to taxes, another 30% going into their mortgage payment, at least 10% going into transportation, another 10% going into food, clothing, and consumables, and probably another 5% minimum for utilities, repairs, and miscellaneous short term needs. That leaves them a home budget of about $15,000 – assuming they don’t have children. Throw in kids, and they’re almost instantly in the red. It also leaves them with no entertainment budget, vacations, or medical expenses calculated.
So, how are they doing it?
Well, part of the trick lies in their financing and preparedness before obligating the better part of their life to paying for a house. The smart family would have done the following three things:
To minimize risk, they would have made sure to have a sizable savings account, likely in the form of a Roth IRA or other secure but accessible account. For the family discussed in this article, it would have been at least $30,000, and closer to $60,000 if they weren't taking large risks.
To make sure they received an acceptable mortgage rate, they would have avoided taking on any new loans in the last two years, limiting their exposure to risk in the eyes of Arlington lenders. This would save them thousands of dollars per year in interest.
In order to receive the best possible interest rate, they would also not have paid off any loans early for at least two years before to taking out their mortgage. This is because lenders don’t make nearly as much money if a loan is paid off early, so they don’t like to see that. When a lender sees someone who will make every payment, but no more, they also see dollar signs. In some cases it can also lower the overall mortgage costs, also saving thousands per year.
To have more disposable income, they will have hired an experienced accountant, which is a sure fire way to save as much money as possible on taxes each year. That would let them claim every possible tax deduction, including the cost of paying the accountant, also allowing them to save thousands of dollars per year.
So, by taking a few carefully planned steps, the average Arlington family can turn an impossible situation for home ownership into something more reasonable. Now, whether buying a home might not be the best decision is another matter entirely, and one that each family will need to decide based on circumstance and income.
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