Buying a new home is a big investment. Once you purchase your home, you'll be tied to the mortgage for anywhere from 15 to 30 years. That's a lot of time if you end up with a home that you can't really afford. In addition to the asking price, there are a lot of additional factors that go into purchasing a home. Here are three tips that will help you determine if you're purchasing a home that fits into your monthly budget.
The Down Payment
Before you purchase your new home, you should take a look at your down payment. In order to get locked into the best deal, most lenders are going to want you to have at least a 20% down payment. Depending on the price of the house you want, that can be a considerable chunk of money. However, if you don't have a 20% down payment, lenders may still offer you financing.
You'll just have to agree to purchase private mortgage insurance or PMI. Unfortunately, PMI isn't cheap. In most cases, you'll be paying anywhere from .03% to 1.5% of the loan amount, which will be added to your monthly mortgage payment. In addition, you'll also pay an annual premium of about 1.3% of the total loan amount. That premium will also be broken down into monthly payments that are added to your mortgage payment.
Maintenance and Repairs
In addition to the mortgage payment that will be due each month, you'll also need to plan for maintenance and repair bills. If a large repair bill would destroy your budget, there are ways that you can make the costs easier to manage. One way is to place a specific amount of money in a savings account each month. The balance will increase each month that you don't have a repair to take care of.
Another way to prepare for the unexpected repair bill is to purchase a home warranty policy when you purchase your home. Home warranties provide protection for most of the systems in your home, including the plumbing and electrical. For a small, monthly payment, your home will be protected against unexpected breakdowns. This payment will be in addition to your monthly mortgage payment.
If you're looking at homes in gated communities, you may be looking at association dues or HOAs. Your HOA payments will be due each month, so you'll need to add that cost to the cost of your monthly mortgage payment. Before you sign on the dotted line, make sure that you can afford both payments. In some cases, the HOAs will be included in your loan documents. If you've been pre-qualified for a specific mortgage amount, make sure that the combined cost of the monthly mortgage and the HOAs do not exceed that amount – or you might not be approved for the loan.
If you're in the market for a new home, make sure you don't end up with a home you love and monthly payments you can't afford. Use the information provided here and talk with a real estate agent to help you create a budget you can live with.