Mahoney Knows Homes: How to determine your budget
“Mahoney Knows Homes” is the Gazette’s expert real estate column. Author Jack Mahoney is a realtor in Kingston Springs who is driven by a mission to deliver top-tier service, trusted market insight and meaningful value to the community he calls home.
When it comes to buying a home, “window shopping” could actually mean you're a serious buyer. (Get it?)
There is always more than first meets the eye when making a large purchase, especially when it comes to home buying where things are guaranteed to get a little more complicated once you start peeling back the onion. Like most big investments, buying a home comes with strings attached. Not in a bad way, but often the kinds of costs you didn’t plan for, and the ones that online mortgage calculators conveniently leave out when you’re trying to figure out what you can really afford.
I think these online calculators and estimates can be misleading, so that is what we’re here to talk about today. My hope is that this information is especially helpful for first time homebuyers or those who could use a refresher. Determining the true cost of a home can be critical to ensure a comfortable budget and remove financial stress as much as possible from the equation. Here are some tips and considerations for while you are contemplating your next move.
Banks: Unless you’re buying with cash, your first step will be a pre-approval letter from a lender. The bank looks at your income, assets, debts and credit score to give you the maximum amount they’re willing to lend. But here’s the catch: that number is a ceiling, not a comfort zone. If you rely only on the pre-approval amount, your budget can stretch too thin. Instead, I recommend working backward: start with a monthly payment you feel comfortable with, then add in the costs below to determine your true budget.
Taxes: Like them or not (I don’t), every property is subject to property taxes. In most cases, this figure is lumped into your monthly mortgage payment. As we’ve all experienced recently, they often go up, and rarely go down. Planning for a potential increase in some of the monthly bills and leaving a cushion can always be a good idea.
Insurance: If you are using a loan, you will be required to carry homeowners insurance. Homeowners Insurance is always a good idea regardless. The type of coverage you get is up to you, but this is an added expense that is often underestimated in calculators and will also be lumped into your monthly mortgage. Contact your trusted insurance agent before writing that offer to make sure you know what you’re getting into.
Utilities: Electric, water, gas, sewer and more! None of these items are accounted for on any calculator or mortgage approval. If you are buying a re-sale home, it may be a wise decision to ask for utility records from the current owner. This can give you an idea of monthly expenses. Energy efficient appliances, fixtures, windows, doors and other systems can help with this as well.
Maintenance: Lawn care, trash service, water heater and HVAC maintenance, pest control – these are small services that add up over the year and will certainly come from the “home expenses” bucket over time.
Budgeting for renovations and repairs: Even with regular upkeep, things break. Factor in aging systems and future replacements. When you are buying, take a look at the age of the roof, HVAC systems, water heater and appliances to get an idea of how many years left these items may have left in them before needing replacement.
Closing costs: Beyond your down payment, expect lender fees, title fees, inspections, transfer taxes and appraisals. This can vary with each situation, but should always be considered as it can be significant!
I realize this list may seem overwhelming. As a realtor who is focused on the educational aspects of real estate and tailoring solutions to each client, these are some of the items I like to inform people about about so no one is caught by surprise.
As always, I would love to speak with you regarding any questions you have about the process of buying or selling. Also, if you’d like to talk through your own home budget to get a clearer picture of what these numbers may look like, I have a coffee at Turnbull Provisions with your name on it.
Jack Mahoney
jmahoney.realestate@gmail.com
