This time of year is always the time of new beginnings – graduation, Mother’s Day, new jobs and yes, new homes.
Do you know how much of a monthly mortgage payment you really can afford? If you have recently pre-qualified for a home loan, you probably know how much the monthly pre-qualified amount is.
If you’re like many people I talk to, you may have been surprised to hear how much mortgage you actually qualified for.
Before you jump right in and start making offers on the home of your dreams, I ask you again, “Do you know how much of a monthly mortgage payment you “really can afford?”
Over the years I’ve helped numerous couples who were already pre-qualified, save thousands of dollars and years of stress by developing a more realistic budget before they made their final offers.
After working on a revised monthly budget these clients realized that
what they actually could comfortably afford was considerably less than what they pre-qualified for, depending on their personal and household lifestyle expenses.
Not surprisingly, after developing a more comprehensive budget, these clients were relieved to see figures that better matched their “gut feeling” about the amount they more realistically could afford.
Before signing on the dotted line, review some of the expense ideas listed below and consider how they could impact your overall budget.
Move In Expense
How much will you need to move all that stuff? Then, after you move in how much will you need for expenses like window treatment, yard upkeep, replaced fence, painting, remodeling, floor upgrade, new wall hangings, different furniture, appliances? Plan high. How many friends do you know who paid less than what was estimated?
Are you prepared for the unexpected events that come up the first and second years? After enjoying my new condo for two months, I had to deal with a host of new visiting bugs (even after the condo passed home inspection), a jammed window-blind pull ($75 just for the service call), outlets that were not working, a leaking roof, and much more –all of which did not show up on inspection and none of which seemed to be covered by my purchased home warranty service.
With another home, it took me three years and the cost of paying for independent service people to convince and prove to the utility company that my gas and electric meter label had been switched with a different condo – meaning I was paying the high bills on another unit, yet freezing as I tried to keep my thermostat low and reduce my bill for three years. Fortunately after much persistence, documentation and time, I was compensated.
The possibility of any of these absurd situations had never entered my mind as possible expenses as a new home owner.
From a budgeting perspective, remember to build in a home repair/maintenance expense and build up a savings fund.
How active and expensive are your children and their activities? Athletic kids mean away games, fees, shows, equipment, extra meals out, etc. How much will their clothing, electronics, hobbies, lesson, ski trips and the rest total over the year? Have you included this in your overall planning when working out a manageable budget for the new mortgage amount?
Periodic Expenses and Maintenance
Calculate routine maintenance expenses for cars, health, yard, home and pets. These too are part of your monthly budget, even if they don’t get paid on a monthly basis. Think of other periodic (meaning annually, quarterly, semiannually, occasional) expenses that will have an impact on your overall budget.
When you filled out the figures for the mortgage application, did you keep in mind those other expenses like trips, vacations, season tickets, annual dues, license renewals, tuition, books and supplies, graduations, weddings, showers, holidays, home improvement projects and similar expenses that seldom are factored in during the initial financial application process.
If you don’t have a huge stash of savings or a generous family financial security net to help you out during any tough times (job loss, or reduced hours, auto accident, health problems), it is especially important to take the time to factor in many of the above expenses along with your mortgage payment.
Ask yourself again, can you really afford the monthly mortgage payments once you add these other expenses to your budget? Can you financially weather those “surprise expenses” or will they land on the credit card or eventually on a home equity loan?
Overextending yourself on a mortgage early on can often show up as sheets on some of the windows, delayed lessons for the children or eliminated movies and meals out for the next 10 months – plus a possible testy relationship with your spouse or family.
If you are just beginning to think about buying a home sometime next year, this is the perfect time to begin evaluating your true monthly budget. You still have time to adjust your spending, save money and become more realistic about your needs.
On the other hand, ideally, you’re way ahead of me on all these suggestions and already making plans to move into your wonderful new affordable home!
Have a great summer and great time settling in!