There are few experiences in life that can trump buying a new home. Buying a home is an exciting experience, so it’s easy to get caught up looking at different styles and neighborhoods without thinking of the finances of home ownership.
To keep you focused, it’s important to figure out your home-buying budget before you start touring and shopping. These home buying tips can help you determine how much house you can afford.
Add Up Your Monthly Income
Jot down the monthly income for all household members from every source. Make sure you’re looking at take-home income not pretax figures. Keep in mind that your net income may increase once you’ve purchased a home if you take advantage of itemized tax deductions like mortgage interest, points paid on your loan and property taxes.
Calculate Your Usual Expenses
Make a list of the expenses you normally pay each month, such as electric, cell phone and cable bills, auto insurance, groceries, clothing and entertainment. Don’t forget to deduct any expenses you’ll no longer pay, such as renters’ insurance.
Factor in Home Ownership Costs
Consider property taxes, homeowners’ insurance, HOA fees, yard care, utilities like water and trash pickup, repairs, maintenance and private mortgage insurance (PMI) if you plan to make less than a 20 percent down payment. Ask your realtor for advice if you’re unsure about some of the potential costs of ownership.
Plan for the Future
A home purchase is a long-term commitment for most buyers, and new expenses are certain to crop up over time. When you’re totaling home ownership costs, be sure to budget for future events like buying a new vehicle or starting a family.
Determine Your Ideal Price Range
Take your income total and subtract all the expected expenses to determine how much you’ll have available for a monthly mortgage payment. Then, use an online mortgage payment calculator to determine monthly costs at specific interest rates. The higher the rate, the higher the monthly payment, so your affordable price range correlates directly to the interest rate you obtain when applying for a mortgage.
To learn more home buying tips or for expert help finding a home that fits your budget, contact the Accokeek real estate pro Sheryl Romeo at Sheryl Romeo Real Estate.