Home Buying by the Numbers

How Much Can You Afford? (continued)

MORTGAGE ISN’T THE ONLY COST

Ask about utilities.

Certain factors affect what sorts of utility payments a house faces on a monthly basis. High ceilings are harder to heat and cool, a big window facing the morning sun can heat up a house really quickly in the summer, and certain appliances can be a real drain when it comes to electricity. It is not rude to ask to see some recent utility bills from the sellers because this can give you an accurate portrayal of what you may be paying for utilities if you purchase the house. Although it is true that every family uses utilities in different ways it is better to know what is generally spent at each house. If you find two houses that you equally like it may come down to which one will cost you less on a monthly basis, and if the mortgage amount is the same the only difference may be monthly utility bills.

What is PITI?

PITI is an acronym for Principal, Interest, Taxes, and Insurance. You will hear this term quite a bit when researching mortgage loans. PITI is the total monthly amount you will need to pay. When a lender quotes you a monthly mortgage payment you need to find out if that figure includes interest and taxes, or if they are merely referring to the principal and taxes. It would be a shame to assume that the number was for everything only to find out that it isn’t so when your first payment is due. You need to be sure to have a solid understanding of what sort of monthly payment you are getting yourself into so that you can budget accordingly. You should also be aware that taxes and insurance can change from year to year, so even if you have a fixed rate loan your monthly payment might still increase each and every year.

Does anyone purchase a home with cash anymore?

Although this practice has become a bit of a rarity, it still happens. If you happen to have the cash you need sitting in a savings account to purchase a home then you still need to decide if using cash is in your best interest. If buying a home will completely obliterate your savings then you don’t want to use cash. If, however, you have enough money saved up to where you can purchase a home outright and still have a sufficient savings to cover emergency expenses for a decent number of months then it may be a good idea to avoid financing. Some people rationalize using financing since the interest paid on a mortgage is tax-deductible, but when it comes right down to it this is faulty logic. Why even pay the interest to begin with if you don’t have to?

When you purchase a home you are making a major financial decision.

There is so much more to buying a home than simply making a monthly payment. You need to realize that you are obligating yourself to a monthly payment for a very long time, and if for one reason or another you think there may come a time when this payment will not be feasible to make then you should think twice about taking on a new home. If you have checked all the facts and figures, though, and it looks like you can afford a house payment along with all the other expenses involved with homeownership then proceed with caution to the next step: finding a lender to finance your mortgage.