As a renter, you most likely have one monthly housing cost to worry about: your rent payment. When you buy a home, you replace that rent payment with a mortgage payment, and often, with a number of other fees, from private mortgage insurance to property taxes. On top of that, you need to pay for the upkeep of the home as well as all the utilities. Coming up with a home budget that tells you how much you really can afford — before you buy — is an important step when you’re a first time buyer. Avoid any surprises after closing by getting a grip now on what you’ll need to pay each month.
Getting prequalified
Getting prequalified for a mortgage is an important step in the process, as it gives you an idea of the amount of mortgage you qualify for, the interest you’ll pay, the type of home you’ll be able to afford and what your monthly mortgage cost will be. While getting prequalified and then preapproved is a must before you start seriously looking at homes, it only gives you part of the picture when it comes to your home budget as an owner.
Costs before you buy
You’ll most likely need to save up enough money to cover a number of costs before you purchase a home. A home inspection is a must, for example, and often costs a few hundred dollars out of pocket. There’s also closing costs to consider, which typically cost a few thousand dollars and vary from place to place. For example, in Washington, DC, in 2013, the average closing costs on a $200,000 home were around $2,400, according to a Bankrate survey.
First time mortgage programs are designed to help reduce some of the upfront costs of buying a home. These programs let you make a lower down payment or have a relative cover the closing costs.
Utilities
Even if you paid utilities as a renter, odds are likely you’ll need to pay more as a homeowner, in part because houses are larger than apartments and in part because many landlords cover the cost of at least some utilities. Before you buy a home, get an estimate of what the average monthly or yearly utility costs are, to see if it’s actually something you can afford. If you’re buying a condo or a property, don’t forget to include the monthly homeowners’ association fees in your home budget.
Maintenance costs
When you rent, a simple phone call to the landlord should take care of any maintenance problems. As a homeowner, you’re responsible not only for the repairs, but the cost of the repairs. While not a monthly expense, you’ll want to have some money set aside for repairs. The New York Times recommends setting aside about 4 percent of the home’s value for regular maintenance.
Being prepared with a budget in advance helps you avoid any difficult financial surprises after you buy your home.
Image source: Flickr
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