Can You Afford The Mortgage? Here's The Math You Should Consider:

So budgeting and finances get a little confusing for a first time homebuyer. I've been there. Here are some things that I wish someone would have told me when I was in the "looking" stage of buying a house.

House vs Condo's:

• These are cheaper than houses, but did you consider that these are similar to living in an apartment? You most likely will have a neighbor and what if they are loud?

• Condos have a lower resale value than houses. This is for future thinking when/if you sell this property in the future. Most buyers are looking for a house with property.

• As a caveat, a condo property may be a great investment for a rental property. Usually, the HOA fee will cover outside maintenance.

• Does this have an HOA monthly fee? These can increase at any point and increase your mortgage.

General Tips:

• Down Payment:

  • When preparing for buying a house, keep in mind that desired down payment is 20%. This would prevent you from having to additionally have to pay a PMI fee as.

  • The very least you can pay is 3% for a conventional loan. With this down payment, you would have to pay a PMI fee (Private Mortgage Insurance). PMI is virtually an extra insurance to protect the lender/AKA. This helps them mitigate the risk when a larger loan is taken out.

  • You can use a mortgage calculator to give you a quick estimate of how much to expect, but I want to stress that this is an estimate and this number will most likely be higher unfortunately. I would also make sure to include taxes and insurance (because this is being realistic - you will have to pay this). Below I have a link to a free calculator.

    • https://www.bankrate.com/mortgages/mortgage-calculator/

• Closing Costs:

  • Appraisals

  • Taxes

  • Title insurance

  • So.....many fees

• Did you factor in these costs?

  • Water bill

  • Sewer bill

  • Electric bill (you can call the company or have your realtor do this and get last years heat bills for the property that you are looking to purchase)

  • Garbage bill

  • Taxes (if you are a first time homebuyer, I promise this number is larger than you'd expect it to be)

  • HOA fee

  • Updates/upkeep (how many things need updating right now for it to be livable? What types of renovations do you want to do? (After your down payment, and this.... think very realistically, can you afford this? I know you want this, but should you perhaps look into something smaller to start?)

    • Do you know how to fix/DIY things. Youtube will get you pretty far, but do you have tools that can complete the tasks that you want to complete. The bills rack up quick if you're not careful and there are a lot of things that you don't think of until you're there.

Calculating the Finances:

• So most financial tips say to not have a house payment more than 28% of your gross income. If I'm being honest, this is not how it worked out for me in this day and age. Mine is approximately 39% of my gross income - personally, I would not go any tighter than this. When you factor in all of the projects and repairs of the house this will be important. Also, factor in any other monthly obligations that you may have: car payment, student loans, etc. You do not want to financially strap yourself so tight for the next 30 years because for example...what if your car breaks down and you need a new one. Can you afford to add this on to your monthly payments as well?

  
  

  1. Look at the past 6 to 12 months and pick the lowest two paychecks.

  2. Add these two biweekly paychecks together. This will be your sum income

  3. Determine what your monthly expenses are for at least the last 3 months. To do this you can create an excel spreadsheet or simply use a pen and paper. You will want to categorize your expenses. I use: fuel, groceries, eating out, energy bill, loans, rent, fun, shopping, etc.

  4. Take your 3 months of expenses and average them for each category. So if in January I spent $65 on fuel, February I spent $140, and April I spent $215 --> my total would be $420 (add all values then divide by 3 to get average). I would then round this number up to $450. We want to overestimate our expenses and underestimate our income. The average fuel expense is $150/month. Consider adding more of a cushion to other categories that you know you can spend more on.

  5. Add all expenses and subtract from overall income (exclude rent in this).

  6. How much do you have left? Are you comfortable with this number? After adding a monthly mortgage payment?

I will say, don't be afraid to talk to more than one lender. Some of them are lazy and/or looking for a quick sale. Do what is best for you and DO YOUR OWN RESEARCH as well so you can understand and keep up with what they are saying. These are big steps that will definitely influence your life. You want to make the smartest decision for yourself here!

• If the monthly mortgage seems do-able then, great!! Now, do you also have more money to add to your savings after your mortgage payment is added into this equation?

  1. I would shoot to have AT THE VERY LEAST $900 extra at the end of each month.

  2. Think about it: you will have a down-payment. This will deplete your savings so it will take quite a bit of time to get that back. Especially if you are only saving $500 each month instead of more because your rent payment was $1200 instead of a mortgage payment of lets say $1900 at the lowest these times!

  3. Just consider: appliances, building materials, and surprises in a house can be extremely costly. A new garage door costs $3,500 on a good day. Gutters cost $1,300. Things add up quick especially when you have no savings from losing it all with the down payment.

Hopefully this has not discouraged you, but has further opened your eyes to the home buying process. You don't know till you're there! And no one really talks about these things because it is finances.

Owning a house is so much fun even though you can wake up to scary surprises sometimes. I think owning a house allows you to grow as a person and you get to try out new things. I wish the best for you, reader, and I hope you are closer than ever for reaching your goal of owning a home. :) I would encourage you to take a few small steps first to get ahead when considering buying your first home.

Good luck out there!