When you are working on getting your finances in order housing is the number one thing that you need to be able to easily cover in your budget. We all need some sort of shelter, don't we?! Whether this is your first experience at paying your own housing costs or if you are considering refinancing a home with a lower interest rate, you need to look at all the angles before you choose your place.
Can You Afford the Payment? - I think the first thing people look at when they are looking for housing is "can I afford this monthly payment?" Whether it's purchasing a home or renting, you need to take into account all of the bills you have now (debts, money spent on groceries, car expenses, etc) and what your income is, and then see what you can afford to pay each month. Once you know what amount you can safely spend, then, you know what to look for in rent, or for a total payment on a house. Remember, a house payment may include your property taxes and housing insurance as well. So, if you can afford about $900 a month easily on housing, that doesn't mean you can get a loan that (with the interest) comes to $900, because maybe about $200 of that $900 will need to go to insurance and taxes. Talking to a lender before you look at homes is a must to see what you may be able to afford to buy. However, don't forget that the lender has no idea that you like to travel every so often, or how much you spend on phone costs or at the grocery store, so you will need to factor those in yourself before you decide what you really can afford to spend on a home.
Can You Afford Refinancing Costs? - If you already have a home, maybe you feel that you can save some money by refinancing at these new, lower rates. We all would love a smaller payment! However, if refinancing means INCREASING the length of your loan, that isn't really saving you money in the long run. Also, if you decide to refinance for less time, the interest rate may be way lower (and save you bunches in the long run), but, your payment might actually be higher if you change from a 30 year to a 15 year mortgage. Also, when you refinance, you need to find out about how much you will pay in closing costs for that loan. It may cost you about $3000 or more when you refinance that you may have to pay out of pocket, or, they may add that in your loan and then you will have an added debt added to your mortgage as well. These are all things you need to do the math on before you decide to refinance.
Can You Afford Your Other Bills, Too? - Let's say you know what you can afford to spend on a home (loan amount) and you know that includes your property taxes and insurance. You also know all your extra expenses you have for your lifestyle. Now, you need to consider with whatever home you are looking into, that you can afford any other costs that come with that particular home. Is the home in an HOA (Home Owners Association) that requires monthly, quarterly or yearly payments? Will your utilities be higher because of the size of the home? Will you have to pay for other services more or less because of where your home is located? (trash removal, gas costs for commuting, other utilities?) Is there added maintenance (like a pool) that you haven't had before? All of these things need to stay in the forefront of your mind while you are looking to see where you might live. Every home may have a unique set of maintenance or other costs. Make sure you know as many of those you can before making your choice.
I hope these little tips can help you to make the best decision you can when you are deciding where to live.
Until Next Time!
Jen Lush--Associate Broker and Homebuyer Photo Credit: Evan Dvorkin