Budgets are a reality that we either revel in or despise. If yours is tell you that yes, you can afford to make a mortgage payment every month but things will be tight, you have some tough decisions to make.
These include the obvious, like putting off the purchase until you have more income or savings or instead, buying the least expensive home you can find. Let’s take a look at some of the less-obvious ways you can take the money you have right now and stretch it to make your Southern Maryland home purchase a little more comfortable.
Pay more now to save later
You may know it was PMI (private mortgage insurance) or MIP (the FHA Mortgage Insurance Premium). No matter what you call it, it’s a monthly payment you would be wise to try and avoid.
This insurance is required on all mortgages for which the down payment is less than 20 percent. PMI can add a big chunk to your house payment. Let’s look at a scenario using the median home price nationwide:
If you use a 30-year, FHA-backed loan at 3.75 percent interest to purchase a home for $250,000, and offer a down payment of $8,750, your MIP will be about $170.
Take the time to save more money so that you can pay a 20 percent down payment, though, and you’ll skip that MIP or PMI payment each month. We don’t know about you, but that savings of about $2,040 each year can be put to good use.
That’s all good, but here’s the exciting part: Paying a 20 percent down payment not only ditches the mortgage insurance requirement – it also lowers your monthly payment because your loan amount is smaller. In our scenario, in fact, you’ll save nearly $500 per month on your house payment.
Seems pretty smart to us!
But, we hear you. Who wants to wait as long as it will take to save all that money? Is there someone that will gift you the funds for the down payment?
While FHA mandates that the borrower kick down at least 3.5 percent of the down payment, conventional loan guidelines permit gift funds for all or part of the down payment, as long as the loan-to-value will be 80 percent or less (meaning you’ll need a 20 percent down payment). Or, they can be used for closing costs and other items.
The donor has to be related to you, however, or a domestic partner, fiancée, or fiancé.
Build sweat equity
So, not all of us can come up with a $50,000 down payment for a $250,000 mortgage. If you have a limited budget with sparse savings, buying a fixer-upper might be the answer. Nationwide, fixers are priced an average 8 percent less than market value, according to an analysis by Zillow.
The drawback to buying a home that needs work is that renovation work will be piecemeal since you already have a tight budget. You’ll do repairs on an as-you-can-afford-to basis. This doesn’t bother some buyers, especially if there’s not a lot of work that needs to be done.
If that sounds like you, a Southern Maryland fixer-upper is an ideal way to get into homeownership for a lot less than you’d pay for a move-in ready home. And, eventually, you’ll have a home that’s customized to your lifestyle and tastes.
All those nickels and dimes add up
Your monthly mortgage payment has several “legs,” and a big chunk of it goes into an escrow fund to pay for insurance and taxes and sometimes your homeowner’s association dues and fees.
If you are an “average” American and you live in a managed community, your HOA fees, taxes, and insurance can add nearly $600 to your house payment each month. There are ways to cut that number and stretch your home-buying dollars.
HOA Fees: Nationwide, HOA fees are on the ride. A recent Trulia study found that these fees outpaced home-price growth and now average $331 a month. If you don’t mind doing your own exterior home maintenance, look for a home that isn’t in a managed community. Your mortgage payment will be easier to swallow if it is more than $300 lighter!
Insurance: Next, look at homeowners insurance. The average annual premium nationwide is $964, according to Value Penguin. The Insurance Information Institute offers several ideas on how to whittle down the cost of insurance, including asking for a higher deductible, installing security features, and taking advantage of discounts, like those for seniors. Be sure to shop carefully and compare policies from several insurers.
Property Taxes: Wallet Hub’s John S. Kiernan claims that “the average American household spends $2,149 on property taxes.” That’s a slightly more than $179 per month. Few homeowners, however, research a home’s property taxes before they decide to purchase. It’s easy to do; you’ll find many assessor’s offices have tax information online.
“Buyers also should find out whether a home may be subject to multiple property tax authorities,” says bankrate.com’s Marcie Geffner. “Not only states, but also counties, cities, and special districts, such as local water, sewer, or school authorities, may wield such powers.”
A tight budget doesn’t have to prevent you from buying a home, but finding ways to stretch what you have may allow you to purchase more home than you thought you could. At the very least, taking cost-saving measures will help lower your monthly payment.
White Plains MD Homes for Sale and Real Estate Services in Southern Maryland. You now have a search engine to help you with your Southern Maryland home search! And I’m ready to provide you with a custom home valuation if you’re considering selling your home. Let’s connect to discuss how I can help you. Contact Kimberly Bean at 301-440-1309
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