We’re newlyweds living in Tennessee, and we’re currently on the hunt for our first house. I’m from Canada, and my husband has lived in Tennessee for quite a few years.
We’re house hunting because our landlord is selling our adorable 700 square foot rental home. We’re happy to be in a new house, especially since the sewage system backs up and the kitchen boasts a tiny portable dishwasher.
So it’s time for us to become first time homeowners – and whoa is it overwhelming!
The first step is figuring out how much you can afford. Here’s how we decided how much house we we could buy:
1. Know Your Monthly Payment:
We’re pretty good budgeters, so we know we have around $1100 left each month after all of our bills are paid. So we fiddled around with our favorite tool in the world, the Zillow mortgage calculator to find our maximum house price.
Here’s what you should factor into your monthly house payment, and a lot of it is stuff nobody ever explained to us:
- Actual monthly mortgage payment (principal and interest): The basic Google mortgage calculator will do this for you. Remember that your mortgage amount is after downpayment. So our $180,000 house will have a mortgage of $171,000 (when you factor in our downpayment of $9000).
- Homeowners Insurance: This is insurance to protect you and your house in case of disaster. It means you’re covered if someone slips on your floor and sues for injuries, or if a rain storm damages your roof – but lets hope neither happens! It’s about $1000 a year or more, split into monthly payments.
- Private mortgage insurance (PMI): You will have to pay this, unless you have a 20% downpayment. Our rate is .52% of the mortgage, split up into monthly payments. Rates differ by lender.
- Property taxes: Find this numbers on the house listing you’re looking at on Zillow, then split that up into 12 payments per year. Our annual payments will be around $1,500-$1,800 (that’s $125 monthly), and they’re paid to the county you live in.
- Homeowner Association (HOA) Fees: Most newer communities have this, and it pays for the basic maintenance and enforcement in a community, but you’re still responsible for your own land. It’ll be anywhere from $15-$50 a month.
- Condo fee: If you buy a condominium, you’ll pay a monthly fee for a management company to take care of your property. That means any shared spaces, like roofs, lawns, and waste management. Expect upwards of $100 a month
2. Find Your 5% Downpayment: Yeah, easier said than done right? But knowing how much you have to spend as your 5% makes it easy to see how much house you can pay for. If you have more than 5% to put towards a house, good on you!
We also found out about the Tennessee Housing Development Agency Great Start Loan. It’s a “forgivable loan” which means you don’t have to pay it back if you live in the house for 10 years! That’s a free downpayment, people! You have to get an Federal Housing Association FHA loan though, instead of a conventional loan.
If you get an FHA loan (Federal Housing Administration) at 3.5% down, the interest rates and PMI’s are usually higher than conventional loans. Plus, you have to pay PMI for the life of the house, unlike normal loans which cancel the PMI after you’ve paid 20% of the mortgage principal. Still, it’s a good option if you’re cash strapped.
3. Add Up The Extras: All the little extras add up, especially if you’re buying a house that needs work. Here are some extras we’re adding into our budget. Remember that these are out of pocket expenses, you can’t put them in your mortgage. So make sure you have enough cash for a full downpayment plus another $1,000-$2,000 for extra expenses.
- New furniture – Budget a few hundred dollars or more more. You’ll want new furniture if you purchase a larger house than what you’re used to, and especially if it has a bonus room! We’re planning on eventually buying a guest bed, because we’re moving from a one bedroom house. Remember you can purchase these pieces over time.
- Moving truck and supplies – Budget a few hundred for this if you rent a truck and supply your boxes, and budget more if you plan to hire a moving company (upwards of $1000 depending on how far you’re moving).
- Paint: If you need to repaint most rooms in the house, you can bet around $500 will be spent on paint and supplies (less if you already have painting tools and supplies).
- Appliances – Budget about $1,200 for a washer/dryer, because they usually get taken when the seller moves (we’re planning on paying less by buying them used). If you already have those and all appliances are in good working order, that’s awesome!
- Cleaning- Budget $100-$200 for washing down surfaces, renting carpet cleaners, having the ducts cleaned, or pressure washing the house. It all adds up.
Once you’ve figured out what you can afford, don’t shop yet! Keep checking our latest posts to see each step of the home buying process as we go through it.