Can You Afford to Buy in Brooklyn? Four Ways to Find Out
Jun 10, 2022 A discussion about feelings & finances,brooklyn,Brooklyn Buyers,Brooklyn Buyers Agent,brooklyn real estate,brooklyn realty,Buying in Brooklyn,realty collective
Interest rates have risen quickly over the past year, but what does that mean for homeowners today? Monthly costs will rise a bit, and financial planning is essential in making sure you can actually afford the home you’re pre-approved for.
Walk through the steps below to ensure your dream home will feel comfortable in your monthly budget!
#1: Examine Your Budget Closely
If you haven’t done a deep dive into your bank statements lately, now’s the time. Sit down and look through every expense you have each month. Include recurring fees, such as utilities, insurance, and payment plans, as well as costs that change like groceries and gas. And don’t forget to look into your spending habits. You may technically have a set amount left over each month, but can you do without the coffee runs every morning? Or will those play a role in your budget at the new house, too?
Lastly, remember to take savings into account. A house that takes away your ability to save for retirement, for example, is likely not worth the price for you.
If you’d like some guidance, many financial planners suggest spending no more than 28-30% on all household costs. This includes your mortgage, water, trash, power, and homeowner’s insurance.
#2: Look Out For Hidden Costs
When you’re looking for homes, you’ll probably notice how the ones that need a little bit of updating are much cheaper than recently remodeled houses. However, this doesn’t make uncared-for homes cheaper.
Any improvements you’ll need to make right away should be included in your budgeting review. Even the possibility of large appliance repair and replacement should be considered.
Other hidden expenses to watch for include higher than average utility bills, security systems, lawn care, association fees, etc.
#3: Adjust Your Expectations
After figuring out how much you can speed, take a look at the market with a mortgage payment calculator in hand. With recent interest rate jumps, the amount of home you can afford has likely decreased.
Look at the homes you like and figure out how much they would cost upfront and per month. Pay attention to how much those numbers change when you put more or less money down.
Then, adjust your expectations to the style and condition of homes that fit your budget right now.
#4: Aim for a Fixed-Rate Mortgage
Adjustable-rate mortgages may give you a lower payment up front, but their rates will fluctuate over the entire life of the loan. This is sometimes okay for people who know they will move within a year or two, but it’s not a wise step for consumers who are purchasing their forever home.
We know rates are rising right now, but that doesn’t mean they’ll go down in the future. If we see an internet rate spike like 2008, for example, you may be on a path to financial ruin.
Also, beware of contract-for-deed homes as many don’t have protections built-in for you.
All in all, a fixed-rate mortgage is the best loan for financial planning, both now and in the years to come.So, is it still a good time to buy your dream home? With prices still on the rise (and interest rates, too), absolutely. It just takes a little more thought than it did a year or two ago. So, walk through the steps above before you start the house-hunting process (maybe even join our free monthly workshop!). And feel free to let us know if you have any questions at all!