Buyer’s Series: Budget Before Buying
Before diving into the house-hunting process, you’ll want to get your financials in order. Sign up with at least one of the credit agencies to check your credit score. Experian allows individuals to sign up for free to do this. Remember: the higher the score, the better the mortgage terms. Apply with multiple lenders to ensure you’re getting the best deal, and doing so will not impact your score. Getting pre-approved lets you know the amount of loan you can afford to borrow and also demonstrates you’re trustworthy to a seller.
Take note: Many realtors will not work with clients that haven’t been pre-approved.
Once you know how much you can afford to borrow, make sure that you understand that your mortgage monthly payment not only includes the loan principal and interest. It can also include property taxes, private mortgage insurance (PMI) or mortgage insurance premium (MIP) , and insurance. Getting an insurance quote before buying can keep you from being caught off guard. Insurance and taxes can add anywhere from a couple of hundred dollars to over $1,000 per month to your monthly mortgage payment, depending on where you live. With a conventional loan, if you don’t put down a down payment of at least 20%, you will be required to pay PMI. If you have a FHA loan, it is called MIP. FHA loans require MIP regardless of the amount of the down payment. Both PMI and MIP will add additional amounts to your monthly payment.
Keep in mind, there are various costs/charges that the buyer must pay during the process of buying a house. The following is an incomplete list of what might be required:
Credit Report fee
Earnest Money
Home Inspection
Appraisal
Title Search
Property taxes
Homeowners insurance
HOA fees
When you are budgeting for a new house, always remember to factor in additional costs along the way. You should also have an monthly budget for ongoing maintenance and home repairs after you become homeowners. Be prepared to pay for lawn maintenance, pest control, exterior and interior maintenance, plus more. An emergency fund is important for large ticket items that may pop-up in the future, such as a new hot water heater or air conditioning unit. These type of expenses aren’t frequent but when they do come along, they can be expensive and stressful to handle if you aren’t prepared.
The one piece of advice I can give you is do your budget homework and purchase less home than you can afford. By doing this, you will have less money going towards your mortgage and more money in your pocket to go on an exciting vacation or create that tropical oasis in your backyard you’ve always dreamed of. ~Cari