BUDGETING for Homeownership

Having a clear picture of your current spending habits is important when preparing for homeownership, it will assist you in developing a forward-looking budget for how you’ll spend your money with a new home. This will help you decide on a manageable monthly mortgage payment.

Look at Your Current Spending Habits

There are several ways to look at your spending. Consider using one or more of the following:

Create a Realistic Current Monthly Budget

Balance Your Income and Expenses

Determine Your Monthly Mortgage Payment Affordability

Making Budget Adjustments

It may be necessary to make adjustments to your budget, review your budget monthly and don't be afraid to make adjustments as needed. Make sure your adjusted budget adequately accounts for all the costs of homeownership. As you move forward in your home search and mortgage process, you'll gather additional information that will help you refine your assumptions. Come back to this step and revisit your budget and your calculations as you gather more information.

Addition Information to Consider

Most homeowners pay their property taxes and homeowners insurance in their mortgage payment. This is known as an escrow account. If you choose to not have an escrow account, you will still have to pay these costs. An escrow account lets you put aside the money monthly so that you won’t have a big expense during the year. Not all loan programs or mortgage lenders will allow you to not have an escrow account.

Some types of homes may have additional required monthly expenses. If you’re buying a condo, co-op, or a home in a planned unit development (PUD) subdivision with shared services, you usually have to pay condo fees or Homeowners Association (HOA) dues. These fees vary widely depending on the amenities provided by the community. Consider these fees carefully when comparing potential homes. These fees will affect the amount of mortgage you will qualify for. Condo or HOA fees are usually paid separately from your monthly mortgage payment.

Avoid Pitfalls

Owning a home means more than just trading a rent payment for a mortgage payment. Homeowners are often surprised by the extra costs of owning a home, including insurance, taxes, and association or condo fees. You also have repair costs, upkeep, and may want to make home improvements and upgrades. A bigger space may need additional furnishings. Finally, there are things you pay for as a homeowner that may have been included in your rent previously, such as water, trash pickup, and other utilities. Avoid pitfalls by making sure to prepare yourself now, before making an offer on a new home.