The idea of buying and owning a home is an exciting one. When you own a home, there are many benefits: for example; no worry of the landlord selling the place your living in, no more noisy downstairs neighbors, and now the money you are paying towards your mortgage means much more than just making a monthly rent payment.
Although buying a home is a good investment, it is essential to be financially prepared to do so. Not being financially prepared can cause your thrilling, new adventure to be a significant burden to you down the road. So what does it mean to be financially ready to buy a home? There are two areas to think about when you begin your home search.
Your Mortgage Payment
One of the first mistakes made when buying a home is with the mortgage payment. It may appear that you can afford the mortgage payment, but have you looked at your family budget? According to Ralph McLaughlin, Chief Economist of the real estate startup Haus, stated in an article that “Buyers can afford to spend up to 50% of their post-tax income on housing-related payments, though 30% is the “ideal” level.”
Here’s an example: let’s say you make $2,500 a month post-tax; 50% of your income would be $1,250, which would go towards your mortgage and other costs such as utilities. This leaves you with $1,250 to pay for everything else in your budget, such as; groceries, phone bills, car insurance, etc. At the 30% level of your income, your home-related costs would be $750, which would give you $1,750 leftover for the same bills. Use this mortgage calculator from Bank of America to determine what your mortgage payment could be and see if it fits well into your budget between the 30% and 50% range. The lower your mortgage payment is, the more money you will have available to spend on other things.
According to a survey done by Zillow in 2017, everyday hidden expenses of owning a home hit an average of $9,080 a year. This average amounts to $757 per month on top of your mortgage payment. These expenses include insurance, property taxes, utilities, repairs, maintenance, and home upgrades. Typically, home insurance and property taxes are included in your monthly mortgage payment, but if these go up, then so does your payment. Utilities may fluctuate month to month, emergency repairs may show up as soon as you move in, and if you want to upgrade your home, then it is going to cost a good chunk of money. These costs are essential to think about because if you don’t have any money saved, for example, then what would you do if you had an emergency repair?
Being Financially Prepared
Settling for a smaller mortgage payment will give you the freedom to save money and have fun without having the feeling that all you do is pay your mortgage every month. Having emergency savings will help you be ready for those unexpected expenses so that they are only called inconveniences. Knowing the actual cost of homeownership will help you prepare and enjoy your home. We want to help you become financially ready to buy a home, contact us today!