If you’re looking for a home, sticking to your financial plan is more crucial than ever. If you don’t know how to budget for a house in San Antonio properly, you may end up “house poor” or unable to afford your monthly living expenses. In addition to your monthly mortgage payment, there are other costs associated with home ownership that you must plan for and save money for. If you know how to set aside money each month, you may buy a home without risking your financial stability.
How Much Can I Afford?
To make a good budget to buy a house, you must consider more than just the mortgage payment. A decent home budget should include both one-time costs, like the closing costs for your mortgage, and ongoing costs, like property taxes and renters insurance.
When making a budget to buy a house, a few general rules can help ensure you only spend what you can afford. The percentage-of-income rule, sometimes known as the 28% rule, is one rule of thumb for creating a budget. This rule of thumb says that mortgage payments shouldn’t exceed 28% of a household’s gross monthly income. Mortgage providers can consider this to indicate their maximum loan amount. These rules might not apply to all home buyers. For example, people living in areas with high living costs should expect a more significant portion of the money they make to go toward housing costs.
Running the Numbers
It’s tempting to let your feelings get the best of you in a hot real estate market, and end up paying more than you intended. One strategy for preventing emotional spending is to set a budget for a home purchase before you start looking. You can get a rough idea of how much you should put toward your mortgage each month by applying the 28% rule. People often use the term PITI (principal, interest, taxes, and insurance) to shorten the name of their monthly mortgage payment.
It’s important to remember that the amount that a lender thinks you qualified for can be higher than what your actual monthly expenses would cover. Lenders have rules that help them ensure you can repay the loan, but they need to know your finances better. With a PITI payment that doesn’t exceed 28% of your gross monthly income, you’ll have plenty of room in your budget for utilities, repairs, and upkeep.
Calculate the Upfront Costs
When budgeting for a home purchase, it’s crucial to consider the regular monthly payments and the one-time charges. You should put aside enough money to cover the following:
- Down payment: Buyers generally know that the down payment is the first cost they have to pay. The down payment amount you need to save might vary from loan to loan but is often between five and twenty percent of the home’s buying price.
- Closing costs: These costs will include lender fees, points, and marking of the deed, along with other one-time costs. These things are paid for at the close and can cost a few thousand dollars or more.
- Inspections: A home inspection will provide you with an idea of the house’s current state, so you can decide whether to buy it. Home inspection costs can range from $400 to $700. The actual cost will depend on the property’s size, location, and current condition.
- Commissions: If you’ve hired a real estate agent, you most likely agreed to pay them a fee (also known as a commission) when you signed an agreement. This is usually 3%, but it is also normal for seller concessions to cover the buyer’s agent’s commission.
Figure Out Your Long-Term Expenses
After you’ve completed the closing process and settled all of the upfront costs related to purchasing a property, you can now focus on regular annual or monthly expenses.
- Utilities: The typical homeowner’s utility bill might range from a few hundred dollars to several thousand dollars, depending on the specifics of the home and its location. Before you close on a house, you can call local energy companies to find out the average cost for the last 12 months. So you can figure out how much they are going to cost you.
- Homeowners association fees: if you’re buying a house in an HOA, you’ll have to pay monthly fees to the association. These might be part of your monthly mortgage payment, or they might not be.
- Repairs and Maintenances: Homeownership brings with it the responsibility of fixing your own broken appliances, plumbing, and electrical systems. The “1% rule” is an ideal rule of thumb. It says that people should save at least 1% of the price they pay for their home yearly for repairs.
- Taxes on property: Taxes on property range by state, county, and city and are usually paid annually or every other year. Many loans have an account known as an escrow, where you pay a certain amount each month. The lender takes them out of that account when taxes and insurance are due.
- Property insurance: Your mortgage servicer or other financial institution will almost definitely insist that you purchase property insurance for your new house. Talk to different insurance agents and brokers to find the best coverage for your budget.
- Home warranty coverage: You must be prepared for fixes and maintenance that come up out of the blue; you should consider getting a home warranty service. These plans cover many of the most critical parts of your home.
- Home emergency fund: Along with standard emergency funds, consider establishing an additional home emergency fund to pay for repairs or maintenance you didn’t plan for.
You need to be prepared for the responsibility of homeownership and have a stable financial foundation before you start house hunting. Besides the regular monthly payments, there will be other fees like an initial deposit and closing costs, to name a few. You must remember to include things like taxes, insurance, utilities, repairs, and maintenance!