This past weekend my husband and I decided which townhouse we want to buy. After working the numbers, looking at different properties, and going through the options, we’ve signed a purchasing agreement on a property at a new development.
Since this is our first time buying a home, we wanted to be as thorough as possible. After all, this is a huge commitment. I wanted to share some of our thought processes for why we chose this particular place.
Deciding on our price range
We wanted to be conservative with the mortgage, so even though we were approved for more, we only looked at properties costing no more than 2.5x our annual income. Since there are guarantees in life, we wanted to be sure our mortgage bill won’t turn into a huge financial burden.
The total amount of the mortgage for the townhouse we chose is approximately twice our annual income. We decided to go with the lower number because we wanted a mortgage that we could afford, leaving some wiggle room for other bills.
Besides the mortgage, we knew we had to look at the other expenses related to owning a place. We started with a spreadsheet template, modified it a bit, and then used it to compare our options.
Home buying costs beyond the mortgage
Property Tax: To get an idea of what our property taxes would look like, I decided to look up the public tax records of homes that were comparable to what we were considering. Our city has the data on their website, so it only took 10-15 minutes to look everything up.
Private Mortgage Insurance: Since our down payment is going to be 10%, we’re going to have to pay PMI. This allows us to purchase the place without 20% down by protecting our lender in the event of a default. When we receive our $8, 000 first time homeowner’s buyers tax credit, it’ll go towards our mortgage principal.
Homeowner Association Fees: While hunting for possible homes, we kept tabs on how much the homeowner association fees were and what they covered. We noted that most association fees covered trash and sewage. Some, but not all, also included landscaping. One townhome condominium complex didn’t include landscaping, and the agent commented that they hoped people would pay an additional fee for the maintenance crew to do the yard work.
One advantage we had was the fact that our friends lived in a development by the same builder and had the same homeowner association company managing it. Thus, we knew what we were getting into. I also checked out some of the HOA bylaws and asked them questions about how they operated. I’ve heard some horror stories about HOAs, and I want to avoid that sort of mess.
After looking at the spreadsheet, we narrowed our options and decided on one specific home. We had a back up in mind, but fortunately the numbers fell in line for the place we wanted. After factoring in the extra costs of home ownshership, this new place should be well within our budget.
We still have a ways to go before we buy and move into our home. We’re hoping that it goes smoothly, but we’ll try to roll with any punches. I’d love to hear your thoughts and stories with the home buying process. Do you have any tips to share? Do you have any regrets? What should we look out for?