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14
First-time Home Buyers - Can You Afford that House
Are You Financially Prepared to Buy Your First Home?
Buying your first home is one of the most exciting--and stressful--events in your life. It may be the biggest purchase you ever make, so you want to choose wisely and pick a house you can afford. To make this happen, arm yourself with the right information before you start your house hunt can ultimately help you buy with confidence.
The first thing to do is determine how much home you can afford. If you're searching for a home in Northern Indiana or Southwestern Michigan, try our easy-to-use MLS property search to get a detailed look at the local markets, communities and neighborhoods you may be interested in living in. It will provide you with an idea about properties for sale in these areas along with listing prices. You can then decide if your desired neighborhood is or is not within your price range.
Once you have found a home you feel "might be" within your budget, use one of the many affordability calculators found on the web to help you determine how much house you can afford. Using your monthly income, monthly expenses, and specified mortgage rate, it calculates the most affordable mortgage for you.
However, it does not take into consideration additional expenses not covered in your mortgage. Different mortgages will have different costs attached to them. Part of buying a house is having cash on hand to cover your upfront expenses, allowing you to make a smart purchase and a competitive offer.
Common upfront costs include:
- Inspections
- Appraisals
- Earnest Money
- Down Payment
- Closing costs
If you buy a house in as-is condition, you may also need immediate money for repairs, appliances or furnishings. Inspections and appraisals commonly start around $500 with earnest money being as high as three percent of your purchase price. Typically, down payments can be 20 percent and closing costs can be in the thousands based on home value if not included in the purchase.
Type of Loan
Different types of loans will have a different monthly cost above your basic mortgage payment. Each mortgage is made of a combination of principal (house cost), taxes, and insurance. Factors such as credit scores help determine the interest rate available to you.
Insurance rates are often based on your down payment, adding an additional fee if you do not have a 20 percent down payment. If paying less than 20 percent, FHA loans for first-time home buyers will have two insurance premiums -- an upfront premium added to your total loan amount, and a monthly premium paid in installments.
Additionally, property taxes can rise from year to year. As your home value rises in these seller's markets, taxes will rise too. Make sure you can afford to pay an increased premium beyond your expected payment for the first year.
Living Expenses
Another important consideration is whether you can afford the additional expenses of actually living there. Check online to discover the average cost for utilities. Is the home energy efficient? What about trash, sewer and water?
If you are moving further away from work, consider additional costs for commuting. Does the house have onsite parking or will you need a paid permit through the city or a garage?
And don't forget about repair costs. While homeownership is a rewarding experience and a good investment, you will be leaving behind the renter's safety net of an onsite maintenance and repair company. Add the possibility of a clogged drain or broken refrigerator to your emergency moving fund too.
Experienced REALTORS® understand the complicated process of both buying and affording your first home. Our real estate agents understand the local market and can help find you a deal that fits within your budget. For help buying your first home, contact Cressy & Everett Real Estate.
Note: a subscription to the Do Not Call list does not apply when requesting information from our company.
