What Can I Afford?
Estimating your mortgage payments
Costs a mortgage calculator won't show you
Though your mortgage payment is the bulk of your monthly home costs, there are other financial considerations you should factor into your monthly budget. Here are five additional costs you might not have accounted for.
Homeowners’ association (HOA) fees
Homeowners’ association dues are paid to a group within a community that creates and enforces rules for property owners. Typically paid quarterly, the fee covers a variety of services such as garbage pickup, use of the common areas and utilities, and insurance.
Rules vary by neighborhood and HOA but commonly include restrictions against parking cars on the street in front of your home, painting your home an unapproved color, or letting your lawn become overgrown.
If the home you are purchasing has an HOA, be sure to familiarize yourself with the rules upfront.
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The cost of a home insurance policy depends on where your home is located and the type of coverage you require. In a hurricane zone, for example, you can expect to have to carry hurricane coverage. Keep that expense in mind when you are estimating your monthly costs.
Property taxes are based on the value of the property and differ with each municipality. Your taxes are typically paid into an escrow account with your loan payment -- the bank remits your tax payment to the city on your behalf. However, the tax payment is above and beyond your loan payment computed by the mortgage calculator. Estimating taxes can be tricky, but it’s a good starting point for a conversation with your loan officer.
Utility costs can vary widely with season and geography. Be sure you have a realistic idea of what utility costs are in your area.
Repairs and maintenance
When you take the leap into home ownership, there’s no landlord to call anymore. The freedom of being able to do what you want with your property comes with the responsibility of fixing the plumbing or AC when they go out.
Houses take cash to maintain. An inspection at the time of purchase can help identify problem areas, but if the refrigerator blows up two months after closing, you'll want to have some savings to fall back on.
It’s always good to have money saved up for repairs and maintenance so your home can be a place of joy not stress. Keep this in mind as you set your price range.
And... don't forget the down payment
Though the down payment is a one-time expense, and therefore doesn't factor into your monthly payments after purchase, it can be a factor in what you can afford to buy.
Most lenders require certain levels of down payments to consider you for a mortgage. It often ranges from 5% to 25% of the purchase price.
The larger the down payment, the more comfortable a lender will probably be giving you the mortgage. But, you should also remember that it may be nice to have some extra money available after you move into your new home. New carpeting, new furniture or improving the landscaping all take money. You should not stretch yourself too thin financially.
The mortgage calculator is a great place to begin estimating the ongoing monthly cost of your new home. But you’ll still need to factor in these extras. Do your financial homework. Then use some discipline to save your down payment.