Wednesday, June 13, 2007
First Time Home Buyer Information
Buying a home is an extremely important step in the success of a family. Wrong or missing information can be difficult if not impossible to correct. Fortunately, organizations like the Arizona Association of Realtors(r) and others have information available to help you in the decision making process. For example, the buyer advisory published by Arizona Association of Realtors(r) is a 9-page publication you can read that covers a lot of areas of potential problems that many home buyers need to be aware.
Saturday, May 12, 2007
Rent is not a Mortgage Payment
Here is an excerpt of an article on Yahoo Finance by Suze Orman. I don't always agree with her, but this is right on the money!
Rent is not a Mortgage Payment Let's assume you currently are renting for $1,100 a month, and you now have your sights set on owning a home with a $200,000 price tag. You put $20,000 down and qualify for a mortgage of $180,000. On a 30-year fixed rate mortgage you're looking at an interest rate of six percent these days. That works out to a mortgage of about $1,079 a month. You're thinking, "Wow, this is a piece of cake. If I can currently afford $1,100 in rent, I can certainly afford a $1,079 mortgage." Stop right there. Do not pass go. I cannot tell you how wrong you are.
The base mortgage is just the beginning of your housing costs. On average you need to add another 40-45 percent to get a more realistic total monthly cost. Yes, you read that right: 40 to 45 percent. So if your mortgage payment is $1,079, the true total cost is about $1,519 per month. Let me show you how the costs pile up.
When you buy a home you owe property tax on its value. If the house is worth $200,000 and the property tax in your area is about 1.25 percent, that is a total of $2500 a year or about $200 a month. You also need to have homeowner's insurance. That can run you $25 per $100,000 of value, or, in this case, $50 per month. And if you make a down payment of less than 20 percent, you are also going to be stuck paying Private Mortgage Insurance. That fee runs about $45 per $100,000 of mortgage. If we assume a 10 percent down payment on our $200,000 house we're talking about $90 or so a month in PMI costs. (Yes, there are ways around PMI but those will cost you too, so just stick with me here while we do the numbers.)
And we're not done with the "extras." Let's not forget all the costs of keeping the house running. Plumbing on the fritz? There's no landlord to call. If you want it fixed, it's going to have to be on your dime. So you better plan on having a reserve fund sitting around to cover repair and upkeep costs for your home. My advice is to plan on about $100 a month for that repair fund.
Add up all these costs and you're looking at a total net housing cost that can indeed be 40-45 percent more than the base mortgage. In this example it's $440 per month more than the $1079 you were thinking it was going to cost you.
Rent is not a Mortgage Payment Let's assume you currently are renting for $1,100 a month, and you now have your sights set on owning a home with a $200,000 price tag. You put $20,000 down and qualify for a mortgage of $180,000. On a 30-year fixed rate mortgage you're looking at an interest rate of six percent these days. That works out to a mortgage of about $1,079 a month. You're thinking, "Wow, this is a piece of cake. If I can currently afford $1,100 in rent, I can certainly afford a $1,079 mortgage." Stop right there. Do not pass go. I cannot tell you how wrong you are.
The base mortgage is just the beginning of your housing costs. On average you need to add another 40-45 percent to get a more realistic total monthly cost. Yes, you read that right: 40 to 45 percent. So if your mortgage payment is $1,079, the true total cost is about $1,519 per month. Let me show you how the costs pile up.
When you buy a home you owe property tax on its value. If the house is worth $200,000 and the property tax in your area is about 1.25 percent, that is a total of $2500 a year or about $200 a month. You also need to have homeowner's insurance. That can run you $25 per $100,000 of value, or, in this case, $50 per month. And if you make a down payment of less than 20 percent, you are also going to be stuck paying Private Mortgage Insurance. That fee runs about $45 per $100,000 of mortgage. If we assume a 10 percent down payment on our $200,000 house we're talking about $90 or so a month in PMI costs. (Yes, there are ways around PMI but those will cost you too, so just stick with me here while we do the numbers.)
And we're not done with the "extras." Let's not forget all the costs of keeping the house running. Plumbing on the fritz? There's no landlord to call. If you want it fixed, it's going to have to be on your dime. So you better plan on having a reserve fund sitting around to cover repair and upkeep costs for your home. My advice is to plan on about $100 a month for that repair fund.
Add up all these costs and you're looking at a total net housing cost that can indeed be 40-45 percent more than the base mortgage. In this example it's $440 per month more than the $1079 you were thinking it was going to cost you.
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