Page 40 - Flathead Beacon // 8.20.14

40 | AUGUST 20, 2014
REAL ESTATE
MONTANA LIFESTYLES
Can You Afford to Buy a House?
FLATHEADBEACON.COM
By MICHELE DAWSON
Although the thought of paying a mortgage is more enticing than paying rent, it’s important to understand all the costs involved in buying and owning a home as you determine whether you can afford to join the ranks of homeowners. Potential buyers sometimes forget to factor in the down payment, homeown- ers insurance and the possibility of de- preciation, as well as the costs associat- ed with closing the transaction, moving, purchasing major appliances, and home, landscape and pool maintenance, not to mention furnishings and design acces- sories once you move in.
The days of calling up the landlord to fix your problems come to an abrupt halt when you’re a homeowner. You’ll be responsible for everything from mal- functioning appliances to leaky faucets to broken heating and air conditioning units and everything in between. And if you buy an older home, you’ll proba- bly eventually encounter costly repairs, such as replacing the roof or windows. To determine whether you can afford to buy a home, you should do the following: 1. Determine the property value of
homes that interest you. The property value (what the home is worth) is de- termined by comparing the prices of homes recently sold of similar size in the same neighborhood. Your real es- tate agent will be able to provide this information to you.
2. Review different mortgage loan types and compare their required down pay- ment amounts to the money you have available. Down payments, based on a percentage of the value of the property and determined by the type of mort- gage you select, typically range from three to 20 percent of the property value. Don’t forget to factor in private mortgage insurance, a policy that al-
lows mortgage lenders to recover part of their financial losses if a borrower fails to full re-pay a loan. Mortgage insurance makes it possible to buy a home with as little as 3 percent down. Usually, the lower the down payment, the higher the PMI, which typically will cost somewhere between $40 and $125 a month.
3. Get an estimate of your closing costs, including points (the dollar amount paid to a lender for obtaining a lower in- terest rate on a loan – one point is one percent of the loan amount), taxes, re- cording, inspections, prepaid loan in- terest, title insurance (a policy that in- sures a home buyer against errors in the title search; cost of the policy is usual- ly a function of the value of the proper- ty, and is often borne by the purchas- er and/or seller) and financing costs from your mortgage lender or a real es- tate professional. These will general- ly add up to between 2 and 7 percent of the property value. You’ll receive an es- timate of these costs from your lender after you apply for a mortgage.
4. Add the down payment requirements and the closing costs together to deter- mine the amount of money you’ll need right off the bat. But you’re not done yet.
5. Think about the actual move. Will you hire a moving company or rent a truck? Either way will cost you. The more stuff you have, the more it will cost.
6. Property taxes. Many lenders will re- quire an impound account in which monthly payments for property tax (and often insurance) are paid togeth- er with the monthly mortgage pay- ment. You can figure your average an- nual tax rate will be about 1.5 percent of the purchase price of your home.
7. Next, budget for maintenance and re- pairs. HouseMaster, a home inspection
company with 300 franchises nation- wide, said that based on a study that evaluated 2,000 inspection reports, the typical costs of major repairs are:
• Roofing: $1,500 to $5,000
• Electrical systems: $20 to $1,500
• Plumbing systems: $300 to $5,000 • Central cooling: $800 to $2,500
• Central heating: $1,500 to $3,000 • Insulation: $800 to $1,500
• Structural systems: $3,000 to
$1,500
• Water seepage: $600 to $5,000 Once you crunch the numbers and
find you come up a bit short, investigate ways to reduce or creatively fund your down payment – it can come from a va-
riety of sources. Check with your real- tor or lender to find out what’s available. You’ll also need to factor in the cost of homeowners insurance.
In your final analysis of whether you can afford to buy a home, you’ll want to weigh the costs with the financial ben- efits – a consistent mortgage payment (unlike rent, which can increase), the tax benefits (you can deduct, in most cases, mortgage interest, closing costs, and property taxes), and the all-important appreciation factor – the rate of increase in a home’s value. And of course, you’ll want to weigh perhaps the biggest bene- fit of all – having a place to call your own.
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