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| Planning a Budget for home (a residential unit built on a plot of land, or an apartment in a building that is built on a plot of land) Buying (Budget for Home Buying budget, home, buying, repair, closing, mortgage, rent, appliance) |
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Planning a budget for home buying is essential. How much can you REALLY afford to pay each month for your new home? Start with your current monthly rental payment (if you are renting). Obviously, you are able to make the rent payment each month. Are you saving any money each month, and if so how much of that are you willing to put toward your new home mortgage? Is your job secure, and will it remain so for the forseeable future? If your spouse also works, is his/her job secure, if you intend to use that income toward your home purchase loan payments? If you would be unable to make your mortgage payments in the future, it would be a terrible thing - you could lose your home to foreclosure, be out on the street, and ruin your credit - making it difficult to buy another home. Keep in mind that owning a home brings along additional monthly expenses that you may not be accustomed to as a renter (or living with your parents):
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In areas that are prone to flooding, the bank will demand additional "Flood Insurance". Most homeowner policies do NOT cover flooding, you will have to purchase it separately from specialized flood insurance plans (often run by State or Federal agencies). Flood insurance is EXPENSIVE, often running to several thousand dollars a year. As a common sense rule, avoid buying homes in high-risk flood areas! PMI (Private Mortgage Insurance) is a scam insurance payment that you are forced to make, if you pay down less than 20% of your home value. It offers absolutely no benefit to you. Your monthly mortgage payment will include this amount, if so deemed by the bank, along with the PITI amounts. Note that after you have paid off about 20% of your home value, the morgage bank is required by law to drop the PMI requirement. Often the value of the property appreciates, making this possible in a few years. You may be required to pay for a property appraisal to prove this, the bank wants your PMI to continue as long as they can drag it out.
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Depending on the condition of the home you are buying, utilities could provide a nasty surprise at the end of your first month in your new digs. If the home is not properly insulated, or has drafty windows/doors, your heating bills will be astronomical in winter - and cooling bills equally gargantuan in summer. Leaky water pipes (especially outdoor sprinkler hookups) could run your water meter like a Vegas slot machine (if you pay for water usage). If the home is really large, you will pay more for electricty to light it up. So try to make a realistic estimate on your utility bills based on the kind and size of home you are looking to buy. Real estate taxes are usually collected by your mortgage company (as part of an "escrow" account), and they pay it on your behalf. This will bloat your mortgage payment, as will home owners insurance. Most mortgage companies try to force you to use their home owner insurer and add the payments within your mortgage payment, but you can sometimes shop around and switch to a cheaper insurance provider. The mortgage payment is often called PITI - Principal Interest Taxes Insurance. So keep in mind these additional numbers, don't just accept the base mortgage (where you make monthly payments on a home purchase loan) amount quote that banks offer when you start shopping for home purchase loans. Some communities have local taxes or fees that you have to pay directly, such as for sanitation pickup, parks, community centers, etc.
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In addition, when you buy homes you also incur closing costs and the cost of any initial repairs or improvements to the property before you actually move in. Closing costs could include bank fees, lawyer fees, property surveys, home inspection, title search, title insurance, tax reimbursements to the seller (if they have prepaid their property taxes), and other incidental fees such as overnight mail, document copying etc. And of course your moving costs, and the cost of any new furniture (if necessary). Add up your up-front expenses, and ensure that you will be able to afford these at closing time. Depending on the age and condition of the home you are buying, you will also have to budget for ongoing repairs and/or home improvements. Older homes are cheaper to buy, but they will require more repairs. Newer homes are more expensive, but (usually) require less repairs. Plumbing, electrical wiring, roofs, boiler/heater/appliances, driveway/sidewalk concrete, drywall and paint; usually require expensive repairs in older homes. Even if the condition of these items is good at the time you are buying older homes, they will likely deteriorate over time - so be sure to keep this in mind and budget for repairs.
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