Congratulations on your decision to buy a new home! While it’s an exciting time, how do you determine how much you’re going to spend on your house? Since buying a house is a very emotional decision, it’s important not to let those emotions lead you in the wrong direction. In this video, I’m going to help you come up with a comfortable amount to spend on your new home. The key is to crunch the numbers so you can find a mortgage payment that you feel good paying.
Breaking Down What You’ll Spend On Your House
The first thing you need to do is figure out how much money you want to allocate for your mortgage. This requires breaking down your housing payment with everything that entails. Remember that it’s not just your mortgage payment you have to be concerned about: taxes, insurance, and HOA fees all play a part in the calculation. If you don’t have the funds to put 20% down, you’ll also need to include the extra PMI fee. Since the largest part of the payment that you’ll be making is your mortgage—which includes your principal and interest—it’s best to speak to a lender to accurately determine how much that will be for you.
In addition to your mortgage payment, you’ll be responsible for taxes on your new home. Property taxes need to be paid for the year, so you can divide the total cost by 12 to add to your monthly mortgage payment. For example, let’s say your property tax is $5,000. That $5,000 will then be divided by 12 to find your month tax cost: about $416. Whenever you pay your mortgage payment, those property taxes will need to be paid as well. However, if you put down 20% when you purchase your home, you have the option to pay bi-annually instead of monthly.
Possible Additional Fees
Depending on your situation and the community you purchase your home in, you may have HOA dues. Some homes will have these fees and some won’t, but it’s important to be prepared. If the home has an HOA, this will be added to your mortgage payment. While this might sound like another extra expense, HOA dues usually cover the cost of maintaining the pool, local parks, trash and water services, and other amenities. Regardless of what it’s used for, you’ll need to figure it in your budget.
As mentioned earlier, there may be a possibility that you’ll have to pay private mortgage insurance—or PMI. This extra fee essentially insures the banks for your mortgage. It’s required for any property that doesn’t include at least a 20% down payment.
Counting The Cost
Taking these fees into account should help you better determine the cost breakdown of homeownership. One of the most important things that will help you navigate this home buying journey is to find a competent lender. The right lender will help you determine what you can afford. They’ll also be able to help you decide where you want to be for a housing payment. By working that number backward, we can find the right home for you.
If you want to know what your number is and get started on the buying process, feel free to call me so we can get shopping.