If you’re saving to buy a new home around Detroit or Romulus, building a balanced budget will help you get — and keep — a house you can afford so that you can enjoy your investment for the long-term. Here are a few tips to help you do that the right way.
Know How Much House You Can Afford
Experts recommend allocating around 25-30 percent of your net monthly income for housing. No more. To understand what that means for you, begin by adding up every source of income you have for the month. For example, if you and your spouse earn $2,000 each per month, plus an additional $500 as a contract worker, you would have $4,500 per month for living expenses. Multiply that amount by .25 and again by .30. Using this formula, you would see that you have between $1,125 and $1,350 per month to spend on your mortgage payment.
Trimming your weekly budget will help to make this expense affordable and help you set aside extra money for inevitable repairs and maintenance costs as they come your way as well. Instead of splurging, looking for inexpensive or free things to do around Redford and save a few extra dollars.
Understand Where Your Money Goes
As a renter, you don’t need to worry what each dollar of your rent covers, but as a homeowner, you’ll need to understand the charges and fees that make up your monthly payment if you’re to stay within budget:
- Principal: The money you pay toward your actual loan balance.
- Interest: The fee paid to the bank for the use of the money you’ve borrowed. If you have a fixed rate, the principal and interest portion of your loan will stay about the same If you have an adjustable rate, your payment will change as the market does.
- Taxes: Property and real estate taxes vary from area to area and are subject to change as your home’s value increases.
- Property Insurance: You’ll be required to carry insurance on the property to cover any damage you may incur due to weather, accidents, etc.
- Mortgage Insurance: If your down payment is less than 20 percent, you could be required to carry private mortgage insurance, which protects the lender should you default on your loan.
- HOA Fees: Some neighborhoods have Homeowners Associations, which levy their own fees and could impact the amount you have to spend on your home.
Understanding these fees will help you decide on buying vs renting and select a home you can comfortably afford, without undue strain to your budget.
Get Help Finding the Right Mortgage
To learn more about budgeting for your mortgage, avoiding common expenses that can kill your budget, or for information about the available home loan and home equity products we offer, contact a Public Service Credit Union associate today. We can even help you re-evaluate your car loan and decide if refinancing is beneficial for you!