Your mortgage company makes a great effort to account for every bit of your income and every one of your expenses. They can not always account for everything however. Accounting for the things that you always pay in cash for is difficult as is accounting for the onslaught of expenses that you will incur asa soon as you get your new home. Therefore, they often approve you for a bit more home than you can actually afford to take on. You might be able to afford getting a home at your limit but you will not live comfortably and you might be financially stressed. This is why we publish articles for those that are desperate for money. That is no way to continuously live so you need to take care to be realistic about how much home you can really afford. When setting your budget, here are things to consider.
Big Homes Come With Big Cooling & Heating Bills
It may not be wise to get as big of a house as you can afford. Remember, the bigger the house is, the more expensive it will be to cool and heat. This is particularly true with older and much less efficient homes. Some features in your home will also increase your utility cost over others. Features like vaulted ceilings and lots of windows are nice but they will make your home harder to cool and heat. When doing your budget, be realistic about what your future utilities will be. It is not a bad idea to add 50% to whatever number you come up with. This will help to account for errors in your calculations and the added costs if utility costs were to rise.
Older Homes Need Maintenance
If your home is not brand new, you will need to consider maintenance costs in your budget. You should have a short term savings account set up to pay for these bills as they come. In your budget, put contributions to this account every month. Take your expected annual maintenance cost and divide it by 12. A good rule of thumb is to figure 1% of your homes value as the annual maintenance cost. So, if your home cost $250,000, your maintenance cost would be about $2500 a year. Set your budget to put about $200 a month into savings for these costs. Finding $200 a month to set aside is much easier than paying for a major repair out of the blue.
If It Is A House, It Has A Yard
Yard work is an expense to consider as well. If you do not want to cut the grass, you will have to pay someone to do it. This can add up to $100 to $200 a month depending on your home and the type of landscaping you have. Flower beds will occasionally beed to be cleared of weeds and trees might need an annual trim. Even if you do decide to do the lawn care yourself, you also have to account for the added water usage to take care of the lawn. It is a little thing but it adds up.
Is There An HOA
Many neighborhoods have HOA’s that take care of the grounds and amenities. You will have dues that must be paid. Usually, the dues are paid quarterly and they are not included as part of your mortgage escrow account. You need to account for these in your monthly budget so that you are not hit with a big bill every three months.
What Do You Pay Cash For
Cash expenses are harder to nail down but they must be considered because they can really add up. These are things like lunches out, trips to the convenience store or even just buying a few boxes of girl scout cookies. For one month, keep a notebook with you and write down what you spend cash on. Add your cash expenditures to the appropriate part of your budget.
You need to take every single thing into consideration when setting your budget. Add up all of the bills that you have and expect to have once you have possession of your home. These expenses also include set amounts for food, entertainment, gas and all of the utilities that you may not be paying currently. Don’t forget money for short and long term savings.
Add up all of these things and then take what is left as what you can afford in a house payment. Taking this step might limit the home that you can afford but it will keep you from being home broke.