Have you decided to buy a new house but aren’t sure how much you should spend? In this video, we’re going to walk you through how to determine your monthly housing payment so you can stay within your comfort zone. Since buying a house can be an emotional time, you’ll want to be prepared so you make the best decision possible for your budget.
The Costs Of Home Ownership
Buying a house is an exciting time. Because it’s also an emotional decision, however, the danger lies in making a bad choice without thinking it through. Additionally, as the Bay Area can be more on the expensive side, you need to be aware of all the expenses of buying a house.
When you’re buying a home, you’re committing to a monthly housing payment. Therefore, the first thing you should do before looking at houses is to determine your budget. You’ll want to sit down with your realtor and decide what price range you’re comfortable with. This means breaking down every cost associated with homeownership, working the numbers backward. Doing so will help you come up with a monthly house payment that you’re comfortable paying regularly.
Expense #1: Monthly Mortgage Payment
The biggest payment you’ll be making is to the bank. If you’re obtaining a loan, you’ll have a monthly mortgage payment that includes both the principal and interest. This will be a fixed amount based on the total amount of the loan. A portion of it gets applied to the interest, and the other portion goes towards your prime or principal each month.
Expense #2: Property Taxes
Your next expense is going to be your property taxes. These taxes are paid twice a year, though it’s best to set money aside every month to prepare. By simply dividing your annual property tax into 12, you’ll be ready to pay your bill without scrambling for money to pay the full amount.
For example, if you buy a $1 million property, your annual taxes would be approximately $12,000 per year. This would mean you’d want to set aside $1,000 each month. When it comes time to pay property taxes, you’ll already have the funds available in your account.
Expense #3: HOA Fees
The next expenses you’ll want to consider are HOA fees. While these will only apply if you live in an area with Homeowner’s Association dues, it’s something that you’ll need to prepare for. HOA dues are paid every month, regardless of whether the property is paid for or not. This will need to be included in your monthly budget.
HOA dues cover a lot of other things, depending on the community you live in. They can include things like pools, clubhouses, landscaping, insurance, and more. Make sure these dues are always paid in full and consult your realtor so that you truly understand what these dues cover.
Expense #4: Private Mortgage Insurance
The last major expense you’ll want to consider is private mortgage insurance, or PMI. This is a monthly insurance charge that comes in addition to your mortgage payment. It’s applied when you put less than 20% down on your house or if you have less than 20% equity in your home.
Prepare For All Expenses
There are additional minor expenses, like your cable and phone bill, that you typically might not have in an apartment setting. You’ll want to make sure to take all of these expenses into account, and then sit down and create a budget. This is very important, again, before looking for houses. When you buy a home, you don’t want to be stressed. Rather, you should be able to fully enjoy the experience.
I hope this helped you determine how much you can afford each month, enabling you to figure out a reasonable price for a house that will fit your ideal monthly payment. If you need any additional help finding properties that will fit your budget—or need additional help with calculating your expenses—feel free to reach out to us and we’d be happy to help!