Everyone seems to know that when buying your first home, it’s important to purchase a home within your financial means and budget. But trying to determine what that means isn’t always the easiest task. Determining your buying limit involves more than adding a mortgage payment into your budget and hoping it fits. It means considering the other ongoing costs associated with homeownership.
The term “house poor” is any individual or couple that spend more than 28% of their monthly income on their housing or mortgage payment per month. This rule is set in place to make sure that when all other expenses are considered, you’re not going to end up paying too much out of your budget – leaving you scrambling for cash in an emergency. Make sure you include any debt payments, grocery expenses, monthly fees, and ongoing payments in your budget for the most accurate representation of what you can afford. It’s better to over-prepare in this area than to grossly under budget.
A prequalification will allow different lenders to look at your current financial situation and determine the maximum amount they would lend and at a predetermined interest rate. This process will consider your current credit score, debt to income ratio, and any other ongoing expenses you have. It’s important to remember that a lender may approve a mortgage amount higher than the 28% benchmark for your spending, so try to stay within your budget despite the increase. Have a look at these Condos for sale in Milton.
Holding a mortgage isn’t the only expense that comes with real estate, there are plenty of ongoing costs that can quickly add up. Utilities, property tax, repairs, maintenance, insurance, and condo fees are just some of the expenses you’ll need to prepare for in the monthly budget. For example, a $1,500 mortgage can quickly become out of range when you add in these other costs. The average property tax can be $700 a month, utilities run approximately $300 a month, home insurance is $50, totaling $2,700 in just housing fees. Read this: how to inspect a condo before buying
Although we’d all like to believe that major home repairs won’t happen to us, it’s important to have a saving fund for the day an emergency happens. On average, expect to spend approximately 1-5% of your home’s worth on home maintenance every year. For example, if your home is approximately $500,000, you’ll want to set approximately $25,000 aside annually. This way you’ll be protected when you notice a crack in the foundation or a leak in your roof.
Purchasing a home is a major investment and needs to be treated as such. Creating a budget not only protects you from emergency repairs you can’t afford, but it will also help you plan for the daily and monthly maintenance homeownership brings. Having a plan in place by budgeting and planning for both small and major expenses is important, especially when making the largest purchase of your life.