Thursday, April 10, 2014

What you can afford to buy is NOT what you can afford to keep



Getting into your very own home is everyone’s dream but many times we fail to consider all of the additional expenses that come along with home ownership. It’s important to understand the true cost of owning a home before it is possible to determine how much buying power you really have. Here are 7 things to consider before making an offer on a home. If you consider these first you will not only better understand how much home you can afford to buy but more importantly how much home you can afford to keep.

Mortgage Payments are Just One Piece of the Pie
This is the one aspect of buying a home that all home buyers tend to focus on the most. It’s easy to consider the monthly payment on your dream home and ignore everything else. The biggest mistake that home buyers make is to buy the maximum priced home that they can afford based solely on the mortgage payment. Just because you qualify for a certain amount does not mean that you can actually afford it. Keep in mind that other expenses may be added to the basic mortgage payment every month automatically by the lender including money deposited into an escrow account to ensure the timely payment of homeowners insurance and taxes. Your true monthly payment must include these figures and not just the mortgage payment.

Taxes are not a Choice
Keep in mind that like everything else taxes on your home may increase. The fact that the home has been sold to you could increase the amount of taxes simply because you may have bought the home for more money than the previous owner; the higher the value of the home, the more the taxes. Even if that is not the case the powers that be can decide to increase the real estate taxes in a given area and this would automatically increase the amount of taxes that you must pay every year. Be prepared for such unexpected events by allowing a little “breathing room” when deciding how much you should spend when buying a new home.

Keeping the Lights On
If you are smart you will ask the current homeowner(s) what their average utility bills are every month. It’s impossible to make a good decision if you don’t have the facts. This is one cost that you know you must consider before you can decide how much home you can really afford and don’t forget that the actual expenses that you will incur for your 5 person family will be more than for the couple that currently occupy the home.

“Stuff” Happens
The one thing that we can never plan for is the unexpected. Although it’s easy to include routine maintenance around the home when considering your budget, what about those things that we cannot predict? Although the home inspection may not have discovered any major concerns what happens if the heating system decides to take a vacation in the month of January or the roof decides to spring a leak? A wise buyer is sure to realize that planning for the unexpected is the only real choice and that means money in the bank just in case.

An Empty House is not a Home
Now that you have everything figured out, what about the niceties? That small dining room table was fine before but it doesn’t do much for the big dining room in your new home does it? And what about the spare bedroom that you so badly wanted in your new home, do you have the money to furnish it properly? Furniture, rugs, pictures, curtains, the list can go on forever in a new residence and where is the money coming from? There is such a thing as too much home and if you can’t afford to decorate and furnish your new home you have bought little more than wasted space.

Have You Heard of PMI?
PMI stands for private mortgage insurance and in most areas if your down payment is less than 20% you may be required by the lender to have it. The purpose of this policy is to ensure that the lender is protected if you can’t afford to keep making your house payment. Although the average premium is between $50 and $100 a month (based on a $200,000 home) it is a fixed monthly expense that you may need to consider.

The List Continues……
There are countless other expenses that you may encounter in your new home that must also be considered and it is impossible to list them all here. Do you want a monitored security/fire system installed in your new home to help protect it and your family? Are there any HOA or Condo Fees that you are responsible for? Should you consider increasing your life insurance policy to help pay off the home in the event of a tragedy?

Buying your first home or upgrading to a bigger one can be one of the most exciting times of your life but the fun won’t last long if you need to struggle every month just to keep it. Be sure to buy a home that you can afford so that you can enjoy the pride and pleasure of ownership that you deserve. I always say “Make sure that you own the home and it doesn’t own you!”

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