There are some key factors to consider when determining how much you want to pay for a house:
The down payment will be at least 3.5% of the sales price. How will this impact your savings?
Are you planning to use a gift from a family member to help buy the house? Check with the title company for the documentation that you will need to provide.
Your monthly payments can be reduced by increasing the amount of the down payment or by buying down the interest rate. A 20% down payment can reduce or eliminate the monthly mortgage insurance costs. You can buy-down the interest rate with a larger down payment.
The monthly payment amount is affected by several things; Principal, Interest, Taxes, Insurance (include Flood and Windstorm, if applicable), HOA Fees, Maintenance Fees, Utility Costs, etc.
You can Approximate the amount that you will pay for a house by Multiplying your desired monthly payment (PITI) by 100 to arrive at a ballpark value for the price range for your new home (based on an interest rate of 6%). This will help you shop for a house and not waste time on looking at houses that are out of your price range. Keep in mind that the taxes and insurance can vary considerably, depending on where a house is located and how old it is.
If you are currently paying rent, use that as a reference to decide if you would like to keep the payments near the same amount or you could decide that you can pay more, without creating a strain on your finances.
The closing costs associated with your transaction. When buying a house, the closing costs are typically about 8% -10% of the sales price. This includes the down payment of 3.5% – 5.0%, insurance, escrow fees, lender fees (origination fees, appraisal, inspection, survey, pest treatment), title company fees, etc.. Closing costs can, sometimes, be contributed to by the seller. Seller contributions to buyer closing costs are not as common in a seller’s market.
Down Payment Assistance that you may qualify for. Check this website for Buyer Assistance Programs that you may qualify for. There are lots of programs and your just might find some free money from some organization.
Shop your loan around for the best terms from your lender. This can save you quite a bit in out of pocket costs and in your monthly payment. Don’t limit your search to big banks. Better terms can often be obtained by using an independent lender.
Don’t even think about buying a car, appliances, furniture, opening a charge account, leasing anything until your house purchase closes and you have the keys in your hand.
Don’t squeeze your budget to the point that you can’t enjoy your new house. Think about everything that you want do do or purchase after paying for a house before choosing your new house or community. Are you planning a vacation trip? Are you planning to have a swimming pool installed? Are there extra expenses for clubs, golf courses, children’s after school activities or care? Do you like to eat out? Keep those things in mind while you are shopping for your house.
Check out this payment estimator to help you understand the costs of home ownership and how interest rates and other charges affect your monthly payment. Don’t forget to include utility costs (get the annual cost receipts from the seller), HOA fees, Taxes, and other charges that may apply.
Now your are Ready to Go House Hunting! Get your REALTOR® to locate houses that meet your requirements, in the location that your want, in the school district that you want your children to go to school in, etc. and schedule your property tours.