The Cost of Homeownership | blog.firstffcu.com

If you’re finally ready to buy a house after years of saving for a down payment, congratulations – this is an accomplishment worth celebrating. Now that you’re officially on the hunt for your dream home, you might be wondering exactly how much you should spend. You don’t ever want to be “house poor,” a situation in which you spend such a large portion of your income on homeownership – that you are not be able to afford much else. So what’s the best guidance on what is potentially the biggest purchase of your lifetime? Here’s the truth: Just because a lender approves you for a loan, doesn’t mean that figure is right for your budget.

Your Lender Doesn’t Know it All

Lenders work with the financial information you provide on paper, as well as your credit history. They won’t know how tight your budget might already feel. In other words, you are the only one who can make sure you’re not overextending yourself.

Additionally, buying a home is different from most other purchases because it requires you to look far into the future. You’re not just thinking about what you can afford right now, you’re planning for the next 5-10 years and even beyond that. Will your income change? Will you start a family or your own business? Many loan decisions are often made with the assumption that everything in your financial life will go perfectly. Unfortunately, that’s not how real life works. It’s important to leave yourself some financial breathing room, and plan for the unexpected.

Don’t Count on Future Salary Increases to Make it Work

Even if you’re not earning a large income yet, lenders could still approve you for a bigger mortgage than you might be ready for. Counting on future raises can leave you stretched too thin today. The smarter move is to buy a home that fits your current budget. Your home should not only be a comfortable place to live, but it should also be a place you can comfortably afford.

Be Cautious with Loan Terms

When you first start shopping for a home loan, you may come across different types of mortgages – and it’s important to understand exactly what you’re signing up for. For most buyers, the safest bet is a 30-year fixed-rate mortgage. With this type of loan, your interest rate stays the same for the entire life of the loan. That means your monthly principal and interest payments will remain consistent for three decades, making it easier to plan and budget for the long haul.

Think Beyond Your Monthly Payment

When you think about how much you’ll owe every month as a homeowner, it’s easy to focus just on your monthly mortgage payment – but homeownership actually includes much more. You’ll need to pay property taxes, homeowner’s insurance, utility bills, maintenance, and potential repairs – and that’s not the end of it. We recently published a blog discussing some common expenses associated with homeownership, so that you can more accurately budget for the “true cost” of your home.

How Do You Figure Out What You Can Afford?

Know Your Why: Start with your personal goals. Are you looking to stop renting, start building equity and put down your roots? Do you want to settle down in a specific neighborhood or school district? Your “why” will shape your decision just as much as your finances.

Set a Real Budget: One of the best tools to help you get started, is a home affordability calculator which includes taxes and insurance. There are some great examples of mortgage comparison and budget calculators available on our website.

Beyond online tools, take a closer look at your real-life spending. How much of your income goes to necessities? What if anything, are you saving? Do you have other debt? Many of us don’t have a real picture of how much we’re spending every month on non-essentials, and being aware of that is one of the best ways to save for what really matters.

Additionally, mortgage interest rates impact how much house you can afford. Right now, rates are hovering around 6.8% nationally, which may feel steep compared to the lower rates we saw just a few years ago. Historically, 6% is an average mortgage rate. The key is to determine what monthly payment feels most comfortable for you.

Research: Your personal finances are only one part of the equation. Local real estate markets vary widely, so it’s important to thoroughly look into the details of the area where you’re looking to make your home purchase. Research real estate trends, property taxes, and the availability of homes within your price range.

Also consider expanding your search area. Some “hidden gem” neighborhoods might offer better value than the ones the majority are targeting. Working with a trusted real estate agent and/or a financial planner can help you make smart choices and stay grounded.

First Financial is here to help you navigate the homebuying process and buy the right house for you, so you can turn your house into a home without financial strain. If the area you’d like to call home is within Monmouth or Ocean Counties in New Jersey, you can begin our mortgage application process online – or get a pre-approval if you’re just starting to shop.* You can also visit a local branch, call 732.312.1500 – Option 4, or complete our quick inquiry form and a mortgage expert will set-up a phone call to answer your homebuying questions (no commitment required). Happy house hunting!

Article Source:

https://www.crossstate.org/about/communications/blog/how-much-house-can-i-afford/

*APR = Annual Percentage Rate. Subject to credit approval. Credit worthiness determines your APR. Rates quoted assume excellent borrower credit history and are for qualified borrowers. Your actual APR may vary based on your state of residence, approved loan amount, applicable discounts and your credit history. Higher rates may apply depending on terms of loan and credit worthiness. Minimum mortgage loan amount is $100,000. Available on primary residence only. The Interest Rates, Annual Percentage Rate (APR), and fees are based on current market rates, are for informational purposes only. Rates and APRs listed are based on a mortgage loan amount of $250,000. Mortgage insurance may be required depending on loan guidelines. This is not a credit decision or a commitment to lend. If mortgage insurance is required, the mortgage insurance premium could increase the APR and the monthly mortgage payment. See Credit Union for details. A First Financial membership is required to obtain a Mortgage and is open to anyone who lives, works, worships, volunteers, or attends school in Monmouth or Ocean Counties.

Achieving homeownership is a common goal amongst adults in the U.S., and is to some – considered to be a right-of-passage into the adult world. The home of your dreams might come with a hefty price tag – and that selling price is really just the tip of the iceberg. From insurance to property taxes, maintenance and utilities – the total price you will pay to live in your home boils down to more than just your monthly mortgage payment. While you determine what you can afford to pay for your home, be sure to factor in these common expenses associated with homeownership so they don’t catch you off guard.

Insurance

Homeowners Insurance protects homeowners from the cost of repairing or replacing damaged property, as well costs that would arise from someone getting hurt while on your property. Although different policies offer various levels of coverage, homeowners insurance is meant to protect you from the nearly impossible feat of paying out-of-pocket to replace your home if an incident should occur. It is important to remember that even the most comprehensive insurance policies exclude certain events, so it is important to try and expect the unexpected by also setting emergency funds aside. According to NerdWallet, the average annual cost of homeowners insurance is $2,110 per year, or approximately $176 per month – for $300,000 worth of dwelling coverage.

Property Taxes

Property Taxes are fees charged on real estate by state and local government to pay for services and upkeep. The amount of taxes you owe typically depends on your area’s tax rates and the assessed value of your property, usually based on an annual appraisal. Unfortunately, these are an unavoidable aspect of homeownership. However, do remember that your property taxes are to thank for services that aid the local community, such as schools and police.

HOA Fees

Homeowners Association (HOA) Fees are only charged if your home is part of a homeowners association. A homeowners association is an organization that enforces rules on properties and residents, as well as collects fees to maintain common areas and facilities. The HOA fees you may be charged depend on numerous factors, such as the type of property you own, the location, and the amenities that are made available to residents. For example, you may be charged higher HOA fees than someone in another local development because you have access to a community pool or gym. If you live in a major metro area, you can expect higher HOA fees due to location. According to Homes, the national average HOA fee is $243 per month.

Maintenance and Upkeep

A common expense associated with homeownership is maintenance on your home. If you have ever asked a homeowner to recall the price of replacing their roof or their hot water heater and they have reacted with absolute horror, it’s because those replacements cost a pretty penny. According to Consumer Affairs, home maintenance costs can range from $50 to over $12,000 depending on what needs to be repaired or replaced. As you might expect, there is a big difference in the cost of repairing your roof versus replacing your roof. One way to save money on home maintenance costs in the long-run is to keep up with a regular maintenance schedule on various systems and appliances. This type of regular maintenance can catch a smaller issue before it becomes a bigger one – and keep costs more manageable. Additionally, certain manufacturer warranties require this regular maintenance for your warranty to remain in effect.

Utilities

The old saying goes that the people is what “makes a house a home,” but try making a home without electricity or running water. All joking aside, paying for utilities is necessary to keep your home running. The cost of utilities widely varies depending on the size, location, and age of your home. Older homes may be less energy-efficient, driving up your electric bill by letting in cold air in the winter and hot air in the summer. Additionally, the cost of certain utilities can fluctuate depending on the time of the year. For example, your electric bill can fluctuate based on how often you are using your air conditioning. The prices of certain utilities can fluctuate based on factors largely out of your control, like changes in regulations or supply and demand impacting the price of natural gas. Common utilities you can expect to pay for are electric, natural gas, water and sewer, trash removal, and cable/internet.

In today’s market, navigating homeownership can be tricky – even without the less obvious challenges and expenses to account for. That’s why the mortgage experts in First Financial’s Loan Department offer complimentary video chats and phone calls to assist with the homebuying process, no matter what stage you’re in.

If you’ve found your dream home and are ready to apply, we’re also here to help you through the mortgage application process, or provide you with a quick pre-approval if you’re just starting to shop.* You can also visit a local branch or call 732.312.1500 and select option 4. We’re happy to help you finance your home sweet home!