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According to the Federal Housing Administration (FHA), depending on
the current debt ratio, most people can typically afford to pay 29
percent of their gross monthly income for mortgage payments. For example,
if you earn $50,000 annually, then your monthly income is $4,167. Twenty-nine
percent of that is $1,208.
Although this provides you a starting point for budgeting for homeownership,
don't forget the other housing expenses you'll incur when determining
if you can afford the house you want to buy.
Utilities
The most obvious of additional housing expenses are utilities—gas, electricity
and water. But don't forget about telephone, trash collection, and cable or
satellite bills.
Taxes
As a property owner, you are responsible for property taxes. The rate will
vary from city-to-city. In our community, the tax rate is (insert %) percent.
That means for a home with a market value of $150,000, yearly taxes will
run (insert dollar amount). To get a general idea on how much the tax bill
will be for a property, ask the seller for a copy of the previous year's
tax assessment. Your real estate professional can help you refine these figures.
Maintenance
With homeownership comes upkeep. You'll want to set aside
a small amount each month to pay for those "rainy day" repairs
such as painting, plumbing, and carpet cleaning. The amount you budget
will depend on the age of the home, as older homes tend to require
more repairs because the appliances are older and may not be under
warranty. Don't forget about seasonal maintenance, including lawn care,
window cleaning, pest inspections, and gutter cleaning. And if you
live in a home long enough, there are inevitable repairs—the roof,
furnace, and appliance replacement.
Insurance
To protect yourself financially, in case something happens to your property
or its contents, you'll need homeowners insurance. Depending on the type
of coverage and your area, the costs for homeowners insurance each year can
be anywhere from a few hundred dollars to thousands of dollars. And, if you
live in an area that has high risks for flooding, earthquakes, hurricanes,
etc., you may need supplemental insurance. In addition, if you want broader
or higher coverage for your collections or high-ticket items such as computers,
jewelry, and artwork, you may want to purchase an endorsement/rider to your
homeowners policy.
Remodeling/Upgrades
Whether you buy an older home or have one newly-built, there are going to be
improvements you want to make. So, you need to consider remodeling and upgrading
costs as well when determining your housing budget.
Consider: the average cost to remodel a 25+ year-old bathroom in 2004
was $9,861, according to Remodeling Magazine's annual Cost vs. Value
Report. This includes materials, labor and subcontracting fees.
Even the cost for paint, light fixtures, window treatments, flooring
and decorative cabinet knobs can begin to add up. However, having a
home improvement fund will help lighten the load.
By determining all the costs associated with homeownership,
you can go into your home search with a reasonable price range that
will allow
you stay within your budget.
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