Harmful Money Decisions
Harmful Money Decisions
Harmful Money Decisions
Owning a home can be the most rewarding experience in a person's life. It will be the largest purchase that most of us make. It is important that you are ready and able to financially support such responsibilities. Stretching your budget to afford a home can be one of the worst decisions you can make.
You may be thinking to yourself, "I have friends whose house payment is the same or even less than what I'm paying to live in this tiny apartment." The house payment itself is just a portion of what it costs to be a homeowner.
There are many extra costs that are needed before even moving into a home. A down payment can range anywhere between 3% and 20% of the total cost of the home. Closing costs can include, title insurance, appraising fees, financing costs, document preparation fees. They range from 3%-6% and are different in each situation. An example could be a person buying a home for $100,000 with a down payment of 5% ($5,000) is likely to pay between $2,850 and $4,750 in closing costs.
Today there are many tools available that will help you determine the amount you can afford for the purchase of a home. You can make an appointment with a bank that deals with mortgages or can go online to find information. Mortgage calculators will take your information to figure your price range.
Generally, the cost of your mortgage should be no greater than 28% of your income. Your mortgage payment plus other debt payments (credit cards, car loans, student loans, etc.) should not exceed 36% of your total income.
After you decide if you can afford the house payment ask yourself, "If something were to go wrong, would I be able to afford it?"
There are many other cost factors that come with being a homeowner. No more calling the landlord cause the toilet is leaking or the disposal is broke. You are responsible for all upkeep such as roofing, landscaping, plumbing, and carpeting just to name a few. Whether you do the jobs yourself or hire someone, it's extra money that has to come from your pocket.
Also consider having to purchase expensive items including a washer and dryer, lawn mower, refrigerator, or other major appliances. You may need to replace the water heater, air conditioning unit, or repave the driveway.
You are now responsible for all utility bills. Such bills include electricity, gas, cable, phone, and internet. Trash, recycling, water and sewage are all required and included in your monthly bills. Real estate taxes and homeowner's insurance can be paid monthly or annually. Before you know it your monthly house payment just got a lot larger. Ask friends or family who have recently bought a home. Have them estimate their closing costs and monthly costs and repairs. Avoid asking anyone who has not bought a home in recent years, as rates are probably different now. Use these only as an estimate to give you a general idea of monthly costs. These are just a few of the things worth considering before committing to the purchase of a home.
Another consideration is to determine how long you plan on being in the home or area. Do you have a job that may require you to move? Selling a home can be a tedious process and you don't have the freedom of just walking away from it. If you have any concerns about your job security or relocation you may want to continue renting.
If you have to stretch to make your house payment, you might end up behind on your other bills. This will lead to high interest rates and fees, making it harder than ever to get caught up. Late or missing payments on your mortgage can have a damaging effect to your credit and can lead to the loss of the home. Losing a home can jeopardize your chance of ever owning one again.
Having to stretch each month to come up with your mortgage payment can be stressful. It is better to wait until you can comfortably make your payment and still have funds to cover any unforeseen repairs or everyday maintenance of your house. When you are ready, invest your time and energy to finding the best situation for you.
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