Wednesday, Apr. 13, 2005

 

Can you afford that house?

According to the Federal Housing Administration (FHA), depending on the current debt ratio, most people can typically afford to pay 29 percent of their gross monthly income for mortgage payments. For example, if you earn $50,000 annually, then your monthly income is $4,167. Twenty-nine percent of that is $1,208.

Although this provides you with a starting point for budgeting for homeownership, don't forget the other housing expenses you'll incur when determining if you can afford the house you want to buy.

• Utilities. The most obvious of additional housing expenses are utilities: gas, electricity and water. But don't forget about telephone, trash collection, and cable or satellite bills.

• Taxes. As a property owner, you are responsible for property taxes. The rate will vary from city-to-city. In Fayette County, the tax rate is 31.58 mills, and a home is assessed at 40 percent of it’s market value. That means for a home with a market value of $100,000, the assessed value would be $40,000 and yearly taxes will run $1,263.00. To get a general idea on how much the tax bill will be for a property, ask the seller for a copy of the previous year's tax assessment.  You may also be eligible for tax exemptions based on age, disability, or for owner occupied homes. Your real estate professional can help you refine these figures.

• Maintenance. With homeownership comes upkeep. You'll want to set aside a small amount each month to pay for those "rainy day" repairs such as painting, plumbing, and carpet cleaning. The amount you budget will depend on the age of the home, as older homes tend to require more repairs because the appliances are older and may not be under warranty. Don't forget about seasonal maintenance, including lawn care, window cleaning, pest inspections, and gutter cleaning. And if you live in a home long enough, there are inevitable repairs—the roof, furnace, and appliance replacement.

• Insurance. To protect yourself financially, in case something happens to your property or its contents, you'll need homeowners insurance. Depending on the type of coverage and your area, the costs for homeowners insurance each year can be anywhere from a few hundred dollars to thousands of dollars. And, if you live in an area that has high risks for flooding, you may need supplemental insurance.

• Remodeling/upgrades. Whether you buy an older home or have one newly-built, there are going to be improvements you want to make. So, you need to consider remodeling and upgrading costs as well when determining your housing budget.

Consider: the average cost to remodel a 25+ year-old bathroom in 2004 was $9,861, according to Remodeling Magazine's annual Cost vs. Value Report. This includes materials, labor and subcontracting fees.

By determining all the costs associated with homeownership, you can go into your home search with a reasonable price range that will allow you stay within your budget.

— Jessica DeWeese
Prudential Georgia Realty