Before buying your new Philadelphia home, you may spend time calculating the cost of a mortgage and how much you think you’ll be able to afford on a monthly basis. Yet, the total costs of home ownership can sometimes be deceiving to new buyers. Before you take the plunge and make an offer, it’s a good idea to draft a household budget and review your annual expenses.
Monthly Housing Payment: More than Just Your Mortgage
Aside from your mortgage principal and interest, homeowners are required to pay real estate taxes and insurance costs for their home each year. These amounts can be broken up into monthly payments and paid along with your mortgage using an escrow account. Alternatively, you can choose to pay taxes and insurance on your own in one annual lump sum amount. Depending on the projected size of your down payment, PMI (private mortgage insurance) is another cost that may need to be factored into your monthly housing payment calculation.
Income and Living Expenses
The purpose of a budget is to determine just how much excess income you have to contribute toward your new home purchase. After determining your monthly housing payment, you’ll also need to look at the rest of your cash inflows and outflows. Total household income for budgeting purposes includes salary and bonuses, as well as any investment income you receive on a regular basis. Living expenses include utilities, clothing, and food. Transportation costs such as gas and a car payment are other large expenses that may need to be factored into a budget. Also, monthly debt payments, such as student loans and credit cards, must be covered by your income. The amount left over after paying required expenses should allow you to live comfortably, save for a down payment, and deal with unforeseen circumstances.
Unforeseen Circumstances
Every household budget needs to include an amount to cover issues that may arise. From small expenses such as appliance repairs or replacement, to larger home investments like a new roof or heating system, as a homeowner you’ll need to plan for unforeseen events. Job security is another factor that varies based on your chosen career and may require you to increase your savings before buying a home.
Plan for More Than an Empty Home
When you first move into a new home, you may have several empty rooms to fill. Many first-time buyers start out with little in the way of furnishings. Or, you might purchase a house with the intent of renovating or remodeling at some point in the future. These changes are items that should be budgeted for and factored into your overall home buying purchase. The type of home you buy may also involve budgetary trade-offs. For example, do you want to live in a bigger, less furnished home while you save more money, or would you prefer to purchase a smaller townhouse with the intent of moving up to something larger in the future?
Sticking to a revised household budget may be difficult, and you may want to try living with your estimated post-home purchase net income for several months before moving forward with your home search. Your $4 cup of coffee purchased on your way to work each morning may be a disposable item you won’t miss, or you may find yourself not ready to give up that luxury. Either way, it’s a good idea to find out if you’re truly ready to own a home before you buy. And, when you’re ready, check out the latest homes for sale in and around Philadelphia.
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