Figuring Out Whether You Can Afford That Home
House hunting can be a brutal affair, particularly if you don't
know what you can afford before hand. No your price range in
advance and you can avoid looking at really nice homes you'll
never get. .
Mortgage - Monthly Payments
The biggest costs associated with owning a home is the mortgage.
Unless you are filthy rich, you are committing to apportioning a
significant amount of your monthly income to that dream home. In
evaluating whether you can afford the mortgage, you need to
consider the difference between the mortgage payment and what
you are currently paying.
If it is a significant step up, will you be able to pay it now
and in a few years? Under no condition should you assume you
will be making more money in the future. Base everything on what
you are making now.
When considering monthly mortgage payments, you also need to
factor in the type of mortgage. Interest rates have been at
historical lows for some time, but are starting to creep up. If
you are taking the plunge on an adjustable mortgage, will you be
able to make the payments if the interest rates increase over
the next few years? In coming to a conclusion on this, you
should assume the rates going up to the caps indicated in the
mortgage for the relevant period of time. Again, you don't want
to get stuck in a financial bind because you let your eyes
overrule you brains when selecting a home.
Other Expenses
The pride of homeownership comes with a few extra costs. In
gauging affordability, many homebuyers fail to take into account
the twin evils of property taxes and homeowner's insurance. The
expenses associated with each of these necessary items can be
surprisingly high. In some states, property taxes can be an ugly
surprise the first year of homeownership. Much like taxes, they
are collected in a lump sum and can be thousands of dollars. If
you fail to plan for them, your finances can become unbelievably
strained.
Buying a home is absolutely the best move you can make if you're
renting. Just make sure you can meet those payments without
losing sleep.