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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