- Posted by Jordan Blakley
- buying a home
With interest rates still low, now may seem like the perfect time to buy that dream home. But before you begin seeking out real estate agents and contacting mortgage lenders, it's important you answer two simple questions:
1. What is Your Monthly Budget?
Buying a house can be tremendously rewarding, emotionally and financially. But, without careful planning, the sudden increase in monthly expenses can be a bit jarring. Remember, with homeownership comes a slew of new bills, including:
Your homeowner's insurance policy is essential to protecting one of your biggest investments – your home! It acts as a safeguard for you and your family in the event of a natural disaster, theft or similar catastrophe.
Just keep in mind, the cost of your policy will depend upon a number of factors, including: insurance replacement cost estimations, your home's age and its location. You may also need an additional insurance policy if you live in a flood or earthquake zone. Generally, however, homeowners will pay an average of $800 a year to cover the cost of their homeowner's insurance.
Depending on your home's location and mortgage agreement, closing costs usually average 3-5% of your home loan's value, which for most people means between $4,000 and $10,000. This generally includes the cost of inspections, legal work, title insurance, homeowner's insurance premiums and property taxes.
As a homeowner, property and school taxes will now become part of your regular monthly expenses. Often, your property taxes will be determined by multiplying your local tax rate by your home's appraised value. Just remember, taxes vary widely from region to region depending on many factors and can range from a few hundred dollars a year for vacant land to tens of thousands of dollars for homes near major cities. Likewise, property taxes are likely to increase significantly during new construction. The valuation changes from raw land to improved land can create supplemental tax bills.
Condo Fees & HOA
If you purchase a home within a condominium or homeowner's association, you will often be required to pay a monthly or quarterly fee. Association dues can range from a few hundred to a few thousand a month depending on the services provided or managed in common. But, these fees are not set in stone. If your association doesn't have sufficient reserves for large expenses such as the need to fix the roof on the clubhouse or repave the parking lot, the association may impose a special assessment, requiring all members to contribute to a fund to cover the costs.
Monthly costs for electricity, cable, water, heating and cooling vary depending upon your home's location, size and the number of occupants. To help you get a good idea of your future home's approximate costs, you can always request to see the seller's recent bills for utilities and services.
Maintaining your home's curb appeal requires time and money. Purchasing a lawn mower and a snow blower can put a major dent in your savings. Or, if you choose to use a lawn maintenance service, you could spend upwards of $140 a month on yard work alone. So, whether you choose to spruce up your exterior yourself or hire a landscaping professional, make sure you have a little money set aside to maintain your home's property.
Performing regular maintenance on your house can help you avoid having to do major house repairs further down the road. Cleaning your gutters and changing your furnace filters are just a few of the routine tasks many homeowners perform. Some projects, however, such as putting in storm windows and cleaning your chimney may require outside help and, consequently – additional funding.
While maintenance tasks are routine, housing repairs can catch you by surprise. A sudden leaky roof, burst pipe or termite invasion are just a few of the costly, unexpected repairs many homeowners experience.
2. How Long Do You Plan On Living In Your Home?
In addition to budgeting accordingly, it is also imperative prospective buyers assess how long they plan to live in their subject home. Typically, mortgage professionals suggest that a person lives in a house for at least six years before relocating. The reason: closing costs are significant and staying in a home for a longer period of time spreads those costs out - providing more value for each dollar spent.
In addition, mortgage payments typically become less costly than rent bills after a period of time. Remember, rent costs rise with inflation. Fixed mortgage payments, however, do not. In a fixed mortgage, the buyer's principal and interest rates will remain frozen for the life of the loan, unless refinanced.
Homeownership can be tremendously rewarding. But before you sign the deed to your new house, make sure you remember to assess your current budget and determine how long you plan on living in your home. These checkpoints will ultimately help you ascertain if homeownership is right for you! If you have questions about getting the process started, talk to a PennyMac purchase specialist today.