Buying a house is an emotional process. Homebuyers get excited. And sometimes people get house fever: they’re willing to pay too much for a house. This is where a homebuying budget saves stress in the short- and long-term. We don’t want today’s excitement to set up an unsustainable house payment in the future. A homebuying budget will inoculate you from house fever.
How Much Mortgage Can You Afford
Your first step in setting your homebuying budget is determining how much mortgage you can afford. While banks will look at your income, credit reports, and assets to determine what you qualify for, you’ll need to be brutally honest with yourself on what you feel comfortable paying.
With the excitement of purchasing a home, it’s easy to feel optimistic about future income, as well as future spending. One way to curb your optimism is to create a budget. To give yourself a complete picture of your finances, write down your monthly and annual expenses. For your utilities, if you’re planning to increase your square footage, also remember to increase your electric, water, and heating bills. Here is a list of common expenses for your list:
- Car Loan
- Student Loan
- Personal Loan
- Credit Cards
- Child Care and School Tuition
- Retirement Account
- Internet and Phone
- Medical Bills
- Charitable Contributions
After you’ve established your current costs, you’ll then determine your projected costs once you own your home. Here are some of your potential expenses as a homeowner:
Property taxes can amount to hundreds of dollars per month. Do your research to learn the amount you can expect to pay. You can easily find online the taxes paid on a property, but your real estate agent can also tell you the taxes on the homes you’re considering when you reach that stage of the homebuying process. Depending on your location, you may be responsible for both city and county taxes. Usually, the amount is based on the home’s assessed value (versus the appraised value, which is typically a higher amount).
If you have a mortgage, you’ll be required to insure your home. Your mortgage documents will list this as “hazard insurance.” While offering protection against fire and theft, your homeowner’s insurance generally doesn’t cover flood damage. If you buy in a flood zone, you may also need to purchase a separate flood insurance policy. You may be able to bundle your home and auto insurance to discount the cost.
Homeowner’s Association Fees (HOA)
Whether you’re interested in a subdivision or a condominium, you’ll need to add HOA fees to your monthly budget. And remember: the more amenities, the higher the fees. While some HOAs run a tight ship and keep costs low, many can run up to thousands of dollars in fees per month. If you’re interested in an HOA property, ask your real estate agent for a history of the fees to see how often they increase.
If you’re a first-time homebuyer, you’re also taking on the responsibility of maintaining and repairing all aspects of your home. Just as your landlord could incorporate their maintenance costs into the rent, you’ll need to incorporate maintenance costs into your budget. Build into your monthly costs servicing appliances, lawn care, snow removal, carpet cleaning, painting, and replacing lights. Keep these costs in mind when you’re looking at homes with your realtor and ask for the age of the roof and the age of major appliances such as the water heater and furnace.
New Abode Real Estate: Knowledge. Guidance. Collaboration.
Once you’ve established your homebuying budget, New Abode can help you with the next steps in the homebuying process. Whether you are buying your first home or are an experienced buyer, New Abode can partner with you to find your dream home.
Our agents will…
- Take the time to get to know you and uncover the home features that are essential to you
- Share our knowledge about navigating the home buying process
- Connect with you to identify potential home options
- Coordinate showings to easily accommodate your schedule
- Discuss with you the pros and cons of your top choices to select the best fit for you
- Negotiate offers to get you favorable price and terms
Schedule your free buyer consultation today!