Determine how much you can afford

Hi! Welcome back! This is Tom Leber with Homeward Real Estate’s Full Sale Team. In this episode we’ll be talking about how you can determine a range of how much you can afford to purchase your next new home. Knowing this ball park range can assist you in searching for the types of homes that might be applicable for your needs, the communities where these homes are likely located, a great starting point for your savings plan and a conversation starter with a lending professional, if needed.

Determine A Monthly Expense Budget Today

The basic fact is that you should base this mainly on your current lifestyle and monthly expenses. Throughout this process you might find that you qualify for a loan that will far exceed the monthly payments that you might feel comfortable making. We call this being “house poor”.

With that said, many first time homeowners are at the beginning of their careers and might realistically anticipate increases in their income over the short term. Note that basing your payments on future income is a risk, but one that might be a realistic consideration.

Also, note that you will most probably be setting aside a considerable amount of your income to have the funds necessary to purchase a home. If you are comfortable with this level of income going toward “savings”, you might also be comfortable attributing these additional funds going toward an increased monthly mortgage payment.    

Account for Property Taxes and Insurance (T&I) and other housing fees:

All homes will have additional monthly (annualized) associated fees outside of the mortgage payment. The encompassing term for the entire amount you are required to pay monthly related to buying a home is called PITI; or the Principal portion payment of the mortgage, the Interest portion payment of the mortgage, Taxes, Insurance & other monthly fees.

Taxes

You will be able to ascertain the amount of taxes any homeowner is currently paying by looking at public records. Be aware that your home will be reassessed by the tax collector based upon the sales price you pay. Your taxes are paid monthly into an escrow account, and then paid to the state on an annual basis. Note that if you are building a new home, the property tax is initially based on the empty land and reassessed the year after the home is completed. This huge escalation in value and taxes sometimes surprises new homeowners.

Insurance

All lenders will require you to carry some level of insurance on your new home until the mortgage has been paid. The state of Florida is in a very confusing state as far as insurance regulation is concerned. Factors like risk of storm damage, the recent appreciation of home values, the flight of out of state insurers and the overall lack of oversight in the industry has led to massive competition for the few insurers left servicing this required product.  I would suggest it will never be too early to form a relationship with a good insurance agent who can advise you on which options are available.

Account for Homeowners Association and Maintenance Fees

There may be fees associated with almost any type of community ranging from neighborhoods that charge the homeowners to maintain an entrance sign, gated communities with pools, and homes considered to be within a condominium. The best way to look at this initially is to ascertain a “ballpark” amount for these additional costs once you have determined the type and location of the community that interests you.

CDD’s (Community Development District) & other assessments are usually costs that are “inherited” as a part of the development or a major improvement to the community. These can be charged outright at closing, assessed as a monthly fee or can be added to your property tax bill. These can also usually be identified by community.

Calculate an Amount

Use a Mortgage Affordability Calculator:

Most online mortgage calculators can estimate your monthly payment for a mortgage based on a certain price, interest rate and term. Many can also estimate how much you can afford based on your income, debt, down payment, and other factors. Use this tool as a broad marker of a monthly mortgage amount to determine a price range in which to search.

Emergency Fund:

Along with your new home savings plan, you should maintain or build an emergency fund to cover unexpected expenses. This is important for financial security and ensures you can handle unexpected costs associated with homeownership.

Consult with a Mortgage Professional:

Seek advice from a financial advisor or mortgage broker to get personalized guidance based on your specific financial situation and local market conditions.

Remember to be conservative in your estimates and avoid overextending your finances. Owning a home involves not just mortgage payments but also ongoing expenses that should be considered in your budgeting process.