SO, you’ve found your dream home, but can you afford it?
There are several factors you will need to keep in mind before you pay your down payment and sign the home closing paperwork.
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THE “THIRD” RULE
With home prices right now and mortgage rates nearing 7% for 30-year fixed rate mortgages, it can be difficult for potential buyers to find what they want within their budget.
When you factor in needs like size, location, condition, and amenities, what looks like your dream home can become a financial nightmare.
To shed some light on the delicate art of budgeting, The US Sun sat down with Realtor.com Editor-in-Chief Clare Trapasso as part of our Let’s Get Real series.
As a general rule, Clare recommends buyers spend no more than a third of their income on housing.
Read more Let’s Get Real stories
Although the exact percentage can vary depending on your personal expenses and debts, Clare explained that “it’s generally a good idea not to spend more.”
She recommends buyers give themselves “as much financial cushion as possible” for needing to furnish the home, maintain it and possibly pay for expensive repairs and replacements.
In addition to this rule of thirds, there are seven factors to consider when calculating your future home.
These seven factors include expected and unforeseen future costs that you will need to set aside money for.
1. CLOSING COSTS
Closing costs refer to appraisal fees, attorney fees, and escrow funds that you pay when closing the deal on your new home.
These costs typically add up to between two and six percent of the sale price, and so can run into the tens of thousands of dollars for more expensive homes.
2. TAXES AND INSURANCE
Homebuyers should also consider property taxes and home insurance costs.
“Property taxes are rising across much of the country as home values have risen dramatically over the past few years,” Clare said.
Factors beyond your control can also drive up the cost of home insurance in the future.
“As storms, floods, wildfires and other natural disasters become more frequent,” Clare said, “homebuyers should be aware that their premiums can also increase over time, sometimes dramatically.”
3. ENERGY COSTS
If you previously lived in an apartment, keep in mind that houses generally cost more to heat and keep the lights on because they are larger and not part of a larger building.
But you will have more flexibility in choosing your energy supplier.
4. INTERVIEW
There are many expensive maintenance requirements for landlords that would have been provided free of charge if you rented before.
Clare explained that these maintenance tasks can range from cleaning the gutters in the fall to servicing the boiler before winter, cleaning the chimney, caulking the tub, and more.
She added: “If buyers don’t like cleaning, shoveling snow, mowing the lawn or raking leaves, they can have someone do it for them, but it will be expensive.”
5. UNEXPECTED PROBLEMS
“Also, new homebuyers need to budget in case anything goes wrong,” Clare said.
Examples of such problems include infestation, appliance failures, and fitting repairs.
6. MAJOR REPAIRS
But the problems can get much more expensive than that – especially if the roof needs to be replaced.
“Homebuyers should anticipate that at some point they will need to replace their roofs, which can easily set homeowners back five figures,” Clare said.
She also points out that major appliances like the HVAC system and boiler won’t last forever.
7. COSMETIC UPGRADES
As you settle into your new home, chances are you’ll want to make aesthetic upgrades and updates.
These can be expensive if you redo the kitchen and bathroom or start knocking down walls and changing the floor plan.
PEACE OF MIND
While these costs affect most homebuyers, you can avoid a nightmare scenario by having the property inspected professionally before buying.
These inspections can alert you to potential problems, such as the time before the roof needs to be replaced, or if there are obvious foundation, plumbing or electrical issues that will need to be addressed.
“If there are issues, buyers who include an inspection condition in their offers have the option to renegotiate with sellers and potentially walk away from a deal if a deal cannot be reached,” Clare said.
“However, even a thorough inspection will not catch everything, and device issues and other problems will appear after the shutdown.
“So it’s good to be prepared and have a little extra room in the monthly budget saved for whatever comes up.”
If you’re trying to find your dream home on a tight budget, check out the five cheapest beach towns in the United States where you don’t have to compromise on space.
And see three tips for buying even when you have bad credit.