Buying Over Your Means
A chronic problem for any modern human seems to be an unhealthy desire for material goods. Whether it be a new car, bigger home, or fancier electronics, you probably want more and better. A huge influencing factor of the housing crash was that many people were buying homes above their means. Living above your means can put you in serious financial hot water and should be avoided in all purchasing scenarios.
While you may not be able to exactly predict all of the costs a new home will supply you with, you can make educated estimates to prevent overspending. The first step is to avoid buying a home more than 2.5 times your yearly income, and no more than 25% of your monthly income.
Your monthly home cost will likely be the sum of your mortgage, property taxes, homeowner’s insurance and additional utilities. While renting, you may be able to avoid shelling out for water, sewer, garbage, heating, cooling and even internet. When buying, factor in all of these additional costs, as well as yearly maintenance expenses; for example, filling your heating oil tank.
Consulting professionals from real estate and mortgage firms such as Cristal Cellar could help you find a house well within your budget, without you having to cut down on essential utilities. Their expert eye could help you with inspection dates, mortgage approval contingencies and other important factors that might be a bit of a hassle for you to handle on your own.
Consider Your Interest Payments
While going through the home buying process you are going to see a terrifying number. This number is the sum of your payments for a 30-year mortgage. It is likely to be close to double what you spent on the house due to the added cost of interest. While no one wants to end up spending double, you may also find it unavoidable if you pay the minimum each month. By taking time to buy when interest rates are low, you can drastically cut down this total amount.
Additionally, you can cut down your total interest payments by making a few additional payments. By making one extra payment per year, you can trim years off the total mortgage and save thousands of dollars in interest. If a full payment seems impossible, consider rounding up your monthly payment. If the amount due is $849, round it up to $900 to help you pay off the house slightly sooner.
Another rookie home buying mistake is to buy when you don’t expect to stay in the area. When you sell your home, you will be subject to realtor fees and sales tax. If you sell your home after staying there for less than 3 years, these taxes will be significantly higher. Before buying, do a check of your personal life to be sure you plan on staying in the area for 5 years or more.