So you want a house - part 4
November 6, 2006I may come back to saving on discretionary spending but a convo had with GeckoBro last night makes me think this aspect is much more important. JUST BECAUSE YOU CAN AFFORD A MORTGAGE DOES NOT MEAN YOU CAN AFFORD A HOUSE! The fact you that you pay $900/month for rent doesn’t mean you can afford a $900/month mortgage. Why not, you ask. Because there’s a lot more to it than just paying the mortgage.
When you use those nifty online calculators that tell you how much house you can afford, it only gives you principal and interest (P&I) which may well be $900/month…BUT wonderful homeowner you are, you have to pay PROPERTY TAX and homeowner’s insurance now. And neither one of those is cheap and you got it like that and put down a nice chunk of money (20% or more), you will have to pay into an escrow account. This means you pay property tax and insurance along with your mortgage every month and the mortgage company pays those two bills for you. So you thought you’d be paying $900/month but you’re really paying $1050/month.
Also, if you live in a townhouse or condo (and sometimes for single family homes too), you will be paying HOA fees. For a nice complex, you can expect $100+/month. Depending on where you live, this might cover garbage and/or water and it generally covers basic outdoor maintenance. So now your $900/month mortgage has turned into $1150/month and you haven’t paid any other bills or bought any groceries.
Your utilities will probably go up, ESPECIALLY if you have natural gas heat (vs electricity). And guess what else? Houses need stuff. No, you won’t buy all that stuff at once but for the first year, expect to drain your wallet on "house stuff". From lawnmowers to towel racks to blinds, there will ALWAYS be something you need to buy and I’m not even talking about decorating for real. So you should budget an extra $250/month for increased utilities and "stuff". Now a $900/month mortgage has turned into $1400/month of expenses. Still think you can afford it?
Luckily for me, I have been informed of those taxes and insurance payments into escrows. So my magic number of what I can afford includes an estimate on those. The key for me is saving now for a cushion in case things happen. And I happen to live in a state that has homestead exemption, so my tax bill will probably be much lower than other areas.
A lot of states have homestead exemption and property tax can still be high. For example, we live in a “low tax” county and have homestead exemption. I was still paying ~$1600/yr in taxes on the old house and we’re now paying ~$3300/yr on the new house. It should be easy to find out what the property taxes are for any house you’re interested in though. I know where I live, you can access that stuff online.
Comment by Serenity23 — November 6, 2006 @ 2:18 pm
And I’m going to stop tapping on your nerves.. HA!
Don’t worry, you’re not bugging me. You actually prompt me to stop thinking about posting and start typing :-) I’m out of town starting tomorrow so I won’t be posting as much. I have another topic (still on homebuying) I’m considering posting but what you do you want to see or think is important? You’re practically my only reader…
Comment by Serenity23 — November 6, 2006 @ 2:18 pm
I read through bloglines and only visit the page if I comment.
One of my mom’s neighbors pays 18k a year in property tax. That to me is high.
Comment by c2a — November 6, 2006 @ 5:11 pm
When I was in the market before, I called the assessor’s office on a couple houses to determine how much their taxes were. The highest one might have been $500. As far as things I’d like to know, here are a few. Condo/townhouse vs. house- which is better? Neighborhoods how to determine good vs. bad? New construction vs. older? Ideas to pay off mortgages sooner than 30 yrs? Duplexes vs. just sticking with the basics for a first time buyer. How long does it take to build equity in thinking of upgrading houses later on?
Comment by Serenity23 — November 6, 2006 @ 6:41 pm