Whether you've been thinking about
buying a home at the Lake of the Ozarks for a while now or the thought is just now crossing your mind, it's never too early to start looking at your financial situation and get an understanding of the expenses and financial commitment associated with the purchase of a home. Keep reading to learn about some of the financial considerations you'll want to make before jumping into the home buying process.
1. Your Debt-to-Income Ratio.
One of the first things to consider is your debt-to-income ratio. This number will be able to give you a pretty clear picture of what you can afford to spend on housing without having to live on sandwiches for years to come. As a general rule of thumb, you don't want to go over 40% of your net pay in debt payments - and a
Lake of the Ozarks mortgage lender isn't likely to approve you for more than that either. First take a look at your current monthly debt payments, this can include a car payment, credit card payments, personal loans, etc. Once you know how much that is, add in your expected monthly mortgage payment and see how that number compares with your monthly income. You don't want to buy a house that will cause you financial strain for years to come.
2. The Closing Costs.
As with anything you buy or sell, there are going to be transaction costs. From the home inspection to the title insurance fees, there are additional costs associated with a real estate transaction that you'll want to consider for your budget. The closing costs will run around 2-3% of the total cost of the home. Your
mortgage lender at the Lake of the Ozarks will provide a Loan Estimate statement that will detail percentages and financing fees before the closing. Be sure to review this document with your lender to ensure you understand it.
3. A Proper Down Payment.
While there are programs out there now that allow for a little to no down payment, you should really consider the importance of a down payment. Traditionally, you had to have a 20% down payment to get a mortgage. While that's not required today, it's still a great number to strive for. If you can put 20% down, you can avoid paying Private Mortgage Insurance (PMI). A sizable down payment will save you more money in the long run, on both the insurance fees and the total interest paid on your loan.
4. Taxes, Dues and Other Fees.
When it comes time to take on a mortgage payment, that price tag on the house isn't the only thing you'll be paying for. It's important that you take into consideration the property taxes and homeowners insurance you will have to pay, as well as any homeowner's association dues. Certain locations in neighboring cities or counties could have different tax brackets to consider. Homeowner association dues will vary from place to place as well. Be sure that you understand these "other fees" before committing to a particular home. You'll need to add these expenses into your budget.
5. Maintenance Costs.
Most people get so wrapped up in the benefits of owning their own home, they don't think about the additional costs they might incur for maintenance on their home. When you are a renter and something goes wrong with your AC or an appliance, you just call the landlord to fix it. You likely don't have to worry about mowing your lawn or other upkeep on the property. These things are often taken for granted. When you choose to become a homeowner, these are things you're going to have to take care of yourself now. It's not a good idea to rack up a bunch of credit card debt as a new homeowner, so be sure to have some cash on hand for unexpected expenses. Don't use everything you have for the down payment and closing costs.
6. Utility Bills.
The utility bills associated with owning a home are often higher than those in a rented apartment. Take the water bill for example. While your landlord was footing the bill for the sprinkler system before, now it's your responsibility to pay to keep your lawn and landscaping looking great. Home features such as skylights, large windows and high ceilings may look great, but they aren't necessarily great for your electricity bill. Ask the current owners of the home how much they pay in utilities each month to get an idea of what you need to budget for.
7. The Long-Term Value.
Another consideration to make when looking at homes to buy is the long-term value of that home. Unless you have great negotiating skill or just a lot of luck, you're likely going to pay close to market value for the home you choose. You'll want to consider what would happen should the market conditions change by the time you're ready to sell. Are there ways that you can add some value to your home? If/when you do decide to sell, you want to be sure that you can at least recoup your investment.
When determining housing expenses, the costs can easily creep up. You think you can afford a certain amount each month on housing, but in all honesty that likely doesn't include other expenses outside of your mortgage.
This is why a budget is so important! Not only do you want to get a
mortgage pre-approval at the Lake of the Ozarks to get an idea of what your lender says you can afford, you'll want to take all these items above into consideration to determine what you personally can comfortably afford. As your
Lake of the Ozarks mortgage professional, I'm here to work with you every step of the way and answer any questions that you may have about the home buying and mortgage process. Feel free to reach out to me anytime by calling 573-746-7211.
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4655 B Osage Beach Parkway
**The postings on this site are my own and do not necessarily represent First State Bank of St Charles’s positions, strategies, or opinions.
