HomeBuyer University: Buying a Home, Just Got Easier
Course 2: Things Every Home Buyer Should Know
Step 1: Mortgage Approval Factors
Step 2: Understanding Mortgage Payments
Step 3: Renting vs. Buying
Step 4:Mistakes to Avoid
Step 5:Home Inspection Negotiating Tips
Step 6: Understanding Mortgage Insurance
Step 7:Affordability Considerations
Your Debt to Income Ratio (DTI) - Why this is so important.
Estimating the cost of home ownership is a vital starting point for all home buyers and should be done prior to the home search. This preserves energy and prevents heartbreak. There are many financial figures to consider including loan payments, taxes, association dues, insurance, and ongoing maintenance.
Mortgage payments can be fixed for the duration of the loan, or may adjust. This depends the loan type you choose. Mortgage payments usually include amounts towards the principal balance of the loan, plus interest charges. Therefore, your interest rate and loan amount dictate what your mortgage payment will be. Your mortgage professional can prepare an estimate using the current rate and the purchase price, but know that these figures are not set in stone since each property will be different.
Your Property Taxes
Many loan programs require that you make monthly contributions into a third party account for the purpose of paying property taxes. This is called an escrow account. The company servicing your loan then makes payments from that third party account directly to the tax collector. This method ensures that you maintain sufficient funds to pay taxes due and that the town is paid property taxes on time. The amount for property taxes differs based on the amount of the tax assessment, and location of the property. Larger properties or those with more acreage usually have more taxes. Property taxes can also adjust annually.
Hazard insurance is also usually mandated to be escrowed. Premiums are due yearly and may be re-assessed by your insurance company. Policy premiums can vary greatly, with premiums at only a few hundred dollars annually to thousands each year.
Property maintenance is an expense often overlooked. Regardless of purchasing single family property, condo or town house, you will have known and unknown maintenance expenses. Expenses may differ from one property to the next, but may include lawn care, replacing water heaters, new windows and countless other items. Including an estimate in your monthly budget can help you effectively plan for inevitable property maintenance expenses.
Estimating the affordability of home ownership is a crucial starting point in the home buying process. Buyers must stay informed on current interest rates and how the rate can affect monthly mortgage payments. Home buyers should also know what the fixed costs will be versus the expenses that may change during home ownership. Some items, such as repairs, should be added to your calculations even though they are mostly unpredictable. By developing a detailed calculation of all figures involved in purchasing a home and home ownership, you can figure out what mortgage payment you are comfortable with.