Once your lender has confirmed your pre-approval and you have reviewed your loan program options, the next step is to set a budget. Even though your lender may be able to approve you for a sales price up to $600,000, you need to decide on a realistic price range based on the amount of cash you are willing to bring to closing and your monthly payment comfort zone.
Cash at Closing
In addition to your down payment required by the loan program you have selected, you will be required to pay your portion at the closing costs at closing. Your loan officer should be able to give you a good estimate, but you should figure on at least $3,000-$6,000. If hanging on to your cash is a priority, ask your Realtor about structuring potential offers to include a seller contribution towards closing costs. Most loan programs will allow up to a 3% seller contribution. In most cases, this amount will cover all of the closing costs and will allow the buyer to come to closing with just the down payment.
In addition to your mortgage principal and interest payment, you will need to factor in the following monthly payments.
Home Owners Insurance – You will pay for your first year of coverage at closing and you will need to factor in 1/12 of your annual premium in your monthly budget. For example, if you annual premium is $1,500, your monthly budget consideration will be $125.00.
Property Taxes – These taxes are due every year by the end of January. In the inner loop of Houston, property taxes without exemptions average about 2.75% of the appraised value. Go to www.hcad.org to research the property tax amount for a particular property. For owner occupied properties, you can apply for a homestead exemption which will reduce the taxable value by about 20%.
HOA Dues – These are common for town home and condominium developments and will vary from property to property. Ask your Realtor about these dues once you start looking at homes.
Utilities – As a home owner, you will be responsible for electricity, water, gas, telephone, internet, cable, etc.
Home Maintenance – It’s always a good idea to factor in something for home maintenance which can include lawn care and maid service. This will vary depending on the age of the home and the updates. Talk to your Realtor to get their opinion on what a reasonable amount should be.
This is the second post in our ongoing series aimed to provide help and guidance to Houston’s first-time home buyers. Check back with us soon, subscribe to our feed, or follow us on Twitter or Facebook for updates on this topic.