This post was created in partnership with Owners.com.
For most moms, your housing is your biggest expense — and if you own, your biggest investment.
If you’re in the market for your first — or a different — home to buy, the price, of course, is one of the biggest considerations. My friends at Owners.com wrote a great post about what to consider: How Much House Can You Afford? 3 Key Questions to Ask Yourself. To summarize:
- Get real about the price. You know how to find all those mortgage calculators, and a pre-approval will tell you what a bank is likely to extend. Don’t forget:
- PMI (if you’re putting down less than 20 percent)
- Homeowner’s association fees
- Savings for repairs
- Maintenance, like the cost of a lawnmower and/or landscaping service, pool upkeep
- Heating and cooling. Depending on the climate and type of heating or cooling system, these utilities can add thousands of dollars to your bottom line each year.
- Wiggle room. Because, you never know.
My Takeaway: Do your research, be realistic, and get real about your monthly out-of-pocket for this prospective pad.
- How’s your credit score? Whether you pay your bills on time, use credit responsibly and have avoided delinquencies, can make a big difference in your credit history — and the mortgage rate lenders will offer you. Even a quarter-point in interest can add up to tens of thousands of dollars over the history of a typical 30-year mortgage.
My Takeaway: Check your credit score. Ask prospective lenders the difference in rates based on your current score, and a higher score. If the difference is significant, consider waiting six months or a year while you diligently take steps to improve your credit rating.
- Possible vs. realistic price. Remember the 2008 housing crisis? That was largely about lenders extending mortgages that were way, way bigger than people could afford — and subsequently defaulted.
My Takeaway: The bank is not the boss of your finances. You are. Just because a lender offers a big mortgage does not mean that you can afford it — or should accept it.
Here are my things to consider for finding a home that you really, truly can afford.
- Location! How far is the address from your work? Best friends and family? Kids’ schools and activities? Commuting not only drains your time and energy, but your pocketbook, too. In addition to fuel and wear-and-tear on your vehicle, when you have a long commute, you are likely to spend more money on conveniences like restaurant and prepared food, opposed to cooking at home, because you are so tired and time-crunched at the end of the day. If you are far from recreation, you might stop going to the gym or your favorite hikes, which affects your health and wellbeing.
My Takeaway: A home is a life. It is not just about the floorplan and countertop material. Careful not to get swept away with good looks, and consider carefully the lifestyle you are buying.
- Furnishings. The bigger the house, the more furniture you need to make it homey (not to mention heat and cool and maintain!). If you need to invest a lot of money to furnish and decorate a new home, be prepared to either have cash-on-hand immediately, or live in a near-empty home for the foreseeable future until you do have that cash.
My Takeaway: Rent-to-own is not a good look.
- Renovations. If you’re like me, you can’t walk through a home older than 7 years old and not spot a slew of structural and cosmetic changes you feel the place “needs.” All those changes are usually pretty pricey. Even if you and/or your brother/boyfriend/cousin/best friend can do the work, if you’re not paying them, don’t count on it happening — at least on your time table.
My Takeaway: If it really is a rehab, make sure financing covers those costs, including the option for a line of equity. Otherwise, expect to live with dark walnut kitchen cabinets and cracked bathroom tile for a while. Credit card debt is a slippery slope.
- The unexpected. Life is full of all kinds of surprises — including the really, really bad ones. Unemployment, chronic illness, death, divorce, natural disasters and accidents. I could go on, but this list is bumming me out. Bottom line: When bad things happen, money typically becomes an issue. When creating a home-buying budget, get serious. Think about the insurances and cash savings you have to cover various scenarios.
My Takeaway: Plan for the worst, thank me later.
If you are wondering “What is a reverse mortgage?” then you should think of it as a credit line that you can access whenever and however you want. Taking out a reverse mortgage means that you are spending part of your home’s equity, which you can borrow in monthly increments or as one big loan to cover medical bills or anything else you need to pay for. The advantage is that you don’t have to pay it back each month. It is only due to be repaid when you no longer live at that location. If you move out then you have to pay the balance. If you pass away then that obligation is left for your family to deal with.
What is your experience? Did you find yourself over-extended on your home? What mistakes did you make? Share with others in the comments!!
For more information on saving money on buying a home, head to Owners.com.