Be Realistic About What You Can Afford

white house with a bunch of dollar signs like balloons making it float in the sky

 

Now that you've worked on your financials, the search begins to find a home in your budget. You should have gotten a pre-approval letter, so now you can begin searching in the right price range.

Just because you are approved for a loan up to a certain amount, it doesn’t mean the whole amount should be spent on the purchase price. Also, even though the assumption is that you’ll be able to pay off that whole amount, it’s always best to live slightly below your means. Especially if you’re suddenly faced with an expensive medical issue or a layoff.

Remember, although you as a buyer don’t pay the Realtor® fee, there are other fees to take into account:

  • Closing costs
    Typically 2%-7% of the purchase price which is mostly paid by the buyer but can be partially paid by the seller and even wrapped into the loan

  • Earnest money to show you, as a buyer, are serious about your offer
    Not required, but usually 1% of the purchase price

  • Home inspection fee
    Typically starting around $325 depending on size and age of home and due at time of service for EACH inspection, definitely worth the money

  • Home warranty fee
    Service agreement that covers the repair/replacement of major systems and appliances that can break down, also definitely worth the money

  • Loan origination fee
    Charge by the lender for processing paperwork

  • Survey fee
    Resembles a map that shows boundaries of a property revealing lot size and comes with a description of the property

  • Buyer’s attorney fee
    The attorney helps the buyer fully understand the purchase contract and how to take title, among many things

  • Underwriter fee
    Fee for the underwriter who assesses your creditworthiness

  • Appraisal fee
    Fee for the appraisal of the home to see if its value matches your loan amount

  • Title search fee
    For a search to find any liens on the property

  • Mortgage taxes
    Taxes on the money you’ve borrowed

There are all of these fees, plus you still have to put in a down payment of a minimum of 3%. You need 20% equity in the home before you can stop paying the Private Mortgage Insurance (PMI) every month that is part of your PITI (the mortgage composed of the principal, interest, taxes, and homeowners insurance/mortgage insurance) and your lender can provide you with more details. 

With all of these fees to take into consideration, it makes sense to make offers lower than the amount you're approved for.

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  1. […] Take action to buy your home and stop renting, however take caution and be realistic about what you can afford. […]

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