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Before you start
searching for your dream home, you first need to
determine a price range you can afford.
According to the Federal Housing Administration
(FHA), depending on the consumer’s current debt
ratio, most people can typically afford to pay
31 percent of their gross monthly income for
mortgage payments. For example, if you earn
$50,000 annually, then your monthly income is
about $4,167. Thirty-one percent of that is
$1,292.
There are several online tools to calculate a
monthly mortgage you can afford using factors
such as your current monthly expenses, down
payment and the interest rate. You can also work
with a lender to get pre-qualified for a loan.
This estimate will help you gauge how much money
you may be able to borrow and the monthly
mortgage payments.
However, the
amount you are able to afford for a home loan
should not be your only consideration for
determining your price range. With homeownership
come other housing expenses.
Utilities
The most obvious
of additional housing expenses are
utilities—gas, electricity and water. But don't
forget about telephone, trash collection, and
cable or satellite bills.
Taxes
As a property
owner, you are responsible for property taxes.
The rate will vary from city to city. In our
community, the tax rate is (insert %) percent.
That means for a home with a market value of
$200,000, yearly taxes will run (insert dollar
amount). To get a general idea on how much the
tax bill will be for a property, ask the seller
for a copy of the previous year's tax
assessment. Your real estate professional can
help you refine these figures.
Association
Dues
Another cost you
may incur is homeowner association (HOA) dues.
Most condominiums and some (residential
developments/subdivisions/neighborhoods) have
HOAs, which are legal entities, created to
maintain common areas and enforce deed
restrictions. As a property owner, you are
required to pay the established monthly or
annual homeowner association dues. Be sure you
factor this cost into your budget.
Maintenance
You also need to
consider the upkeep of your home. You should
budget for seasonal maintenance such as lawn
care, pest inspections and carpet cleaning, as
well as unexpected repairs. The amount you
budget will depend on the age of the home, as
older homes tend to require more repairs such as
installing a new roof, painting and replacing
older appliances.
Insurance
Depending on the
type of coverage and your area, the costs for
homeowners insurance each year can be anywhere
from a few hundred to thousands of dollars. And,
if you live in an area that has high risks for
flooding, earthquakes, hurricanes, etc., you may
need supplemental insurance.
Remodeling/Upgrades
Unless the home
you purchase is picture perfect, you’ll more
than likely be adding your personal touch.
Therefore, you need add to your housing budget
the costs for remodeling and upgrades. According
to “Remodeling Magazine’s” 2007 Cost vs. Value
Report, the national average for a midrange
minor kitchen remodel is $21,185; a bathroom
remodel averages $15,789.
Even minor
cosmetic fix-ups such as light fixtures, window
treatments, carpeting and decorative cabinet
knobs can begin to add up.
By determining all
the costs associated with homeownership, you can
go into your home search with a reasonable price
range that will allow you stay within your
budget.
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