Realistically Establishing a Home Buying Budget
Money: it’s probably the biggest thing on your mind when you start considering the purchase of a new home. As you crunch the numbers, it’s important to not just fixate on the mortgage payment but consider a few other items that will round out your new budget.
First things first, your mortgage payment is made up of four parts; principal, interest, taxes, and insurance (PITI). Be wary of some of those online mortgage calculators because they may either only consider principal and interest or grossly miscalculate your taxes and insurance premiums. Depending on your loan type an additional component may be private mortgage insurance. A loan officer who is familiar with your specific region can most accurately predict your total mortgage payment consisting of all four components (or perhaps five).
When you think about your monthly expenses as they will relate to a new mortgage, think about your other current “big ticket” monthly payments also. Payments towards car loans are often the next largest expense to be debited out of your bank account each month. If you own your automobiles free and clear, than something else to consider is any annualized maintenance items for upkeep or repairs. Financed or owned, car insurance should be factored in. If you pay your car insurance annually or semi-annually, be sure to compute the monthly cost. Although less predictable, monthly fuel expenses are worth your consideration, also.
Purchasing a new home or potentially a larger home will bring about some increased utility expenses. Often times, you can reach out to the seller of the home and ask them if they’d disclose an average bill. The big ones are usually electric, fuel sources (gas, propane, oil, etc.), and water/sewer. Other items for your consideration are trash removal, recycling, telephone, internet, and cable.
“If you fail to plan, you are planning to fail.” The last major monthly expense to consider while constructing a home buying budget relates to personal financial stewardship. I believe that it’s important to save and to give. Do you have an emergency savings account? Do you save for large expenses? Do you save for vacation? Do you contribute money towards your 401k? Do you contribute money towards a Roth IRA or traditional IRA? Do you consistently tithe? Or give to charities or non-profits? Planning to save is the key to avoiding the popular nomenclature of being “house poor,” and it’s critical to being a part of the process from day one.
A few other budget items to note include money spent on groceries, meals out, yard maintenance, prescription medicines, health club memberships, health products, cell phone plans, and all current debts. Additionally, every individual has their own proclivities that need consideration.
You may account for certain bills easily when going through your loan application; however, to make the best informed decision, it’s invaluable to look deep into even the minute costs that won’t appear on a quick debt-to-income ratio. The best budget possible is the one that can account for every dollar coming in and every dollar going out. A savvy purchaser will evaluate every possible expense while considering their next home’s purchase.