You’ve probably used a mortgage calculator to get an idea of the price range in which you should be looking for homes for sale. While that might give you a very rough idea of the homes you should consider, it shouldn’t be the only budgeting you do, said Kelli Roland, housing manager for American Financial Solutions, a nonprofit credit-counseling agency.
In addition to your down payment, there are other expenses to consider, both at closing and after your moving truck pulls up, including:
- The upfront cost of a home inspection ($300 to $400)
- Closing costs, including appraisal, loan, title and lender fees. The average closing cost on a $200,000 mortgage is $3,754, according to Bankrate’s annual survey of closing costs
- Monthly homeowners-association fees
- Moving costs
- Maintenance costs; credit counselors suggest putting aside 1% of your home’s value annually to make needed repairs
- Higher utility costs
- Home affordability calculator
- Combined annual income
- Other monthly obligations
- Cash for down payment
The bigger gas, electric or water bills that come with a home often take new homeowners by surprise, Roland said. She suggests calling your local utility company before you buy to get an idea of what the average bill is in your area.
Roland and other credit counselors also suggest that before you purchase, you practice making mortgage payments, transferring the difference between your current rent and the expected mortgage bill into savings. Roland did this when she bought a house in 2011, putting an extra $700 a month into a savings account.
“We needed to know, ‘Can we really afford that and live comfortably and not end up with $40 until the next payday?'” she said.
Other expenses that buyers don’t remember to budget for are things such as curtains or blinds for their new house, a lawn mower, garage shelving and new appliances if the ones in the home are on their last legs. “You need to make sure you have money set aside for those things,” Roland said.
It’s important to be realistic about what you can afford each month and still maintain the lifestyle you want, complete with vacations, piano lessons and the occasional dinner out.
Get preapproved for a mortgage before you start shopping for a home. But just because you’re approved for a certain amount, don’t think you necessarily should spend that much. “Banks will often qualify you for more than you should get,” Roland said.
Fannie Mae advises that buyers spend no more than 28% of their gross income on a mortgage payment and no more than 32% on total housing costs, including mortgage, insurance, property taxes and private mortgage insurance (PMI), which is required if your down payment is less than 20%.
So be house proud, and not house poor, by setting a realistic budget and sticking to it.