When we discuss real estate, the conversation often revolves entirely around the "purchase price." But the more important question for any homebuyer is: “What will it cost me per month to run this house?”
Thinking of your home in terms of monthly expenses rather than a lump sum allows you to find your true "comfort zone." Here is a breakdown of the 2015 basics you need to consider before you sign on the dotted line.
1. The Mortgage Payment (PITI)
Your monthly mortgage payment is typically comprised of four things: Principal, Interest, Taxes, and Insurance (PITI).
-
Mortgage Rates: In today’s 2015 market, we are seeing 30-year fixed rates averaging around 3.85%, making it a historically affordable time to borrow.
-
Property Taxes: In our local area, taxes are often escrowed into your monthly payment, so ensure your estimate includes them.
2. Private Mortgage Insurance (PMI)
If you are unable to put down a 20% down payment, most lenders will require Private Mortgage Insurance (PMI).
-
The Cost: On average in 2015, PMI costs roughly $66.00 to $100.00 per month, depending on your credit score and loan-to-value ratio.
3. Homeowners Insurance
Insurance is a non-negotiable expense. While rates vary based on your location and the value of your home, the current national average is approximately $910.00 per year (or about $80.00 per month).
4. Homeowners Association (HOA) Fees
If your dream home is in a managed community, don’t forget the HOA fee. These cover the maintenance of common areas and shared amenities. These fees vary widely, so be sure to ask for the exact monthly or quarterly figure early in your search.
5. The "1% Rule" for Maintenance
One of the most overlooked variables is upkeep. A sound financial guideline is to budget 1% of the property value annually for maintenance and landscaping. For a $250,000 home, that means setting aside roughly $200.00 per month for the unexpected.
The Bottom Line
Step one of your home search isn't finding the house; it’s finding the number. Use these figures to determine a monthly payment you are comfortable with, then use that to find your price point.
