If you’re like most people, your housing costs are probably your largest monthly expense. Whether you own a home or are thinking of buying one, getting this cost under control is key to your financial well-being. Here’s how to get started:
Buying a home? Consider housing costs first
If you’re thinking of buying a home, you should weigh the pros and cons of renting or owning. Renters aren't locked into a long-term commitment, but can face rent increases. Homeowners who have a fixed-rate mortgage can count on the same house payment for as long as 30 years.
Of course you'll also need to figure out how much you can afford to spend to rent or buy a home. One way to assess those costs is to use an online rent or buy calculator, which can help you make the comparison.
A good rule of thumb is that you shouldn't plan to spend more than 28-30 percent of your monthly income on either rent or your mortgage payment, property taxes and homeowner's insurance. Some people spend less than that because they have other big expenses. Others spend more because housing is a high priority in their lifestyle or they live in an area where housing is especially expensive.
Owning a home may be more costly than renting for some people. However, a home might appreciate in value and some of the costs of homeownership may be deductible on your income tax returns.
Own a home? Consider ways to cut your housing costs
If you’re a homeowner, you should give your mortgage a checkup and ask yourself some important questions about your housing costs. Here are some questions to consider:
● What is the current interest rate on your mortgage and how much is your monthly mortgage payment? Why type of mortgage do you have? What are the terms of your loan? Do you have an adjustable-rate mortgage and if so, when will your interest rate and payment be reset? Does your loan have a balloon payment or prepayment penalty? Could you lock in a fixed interest rate or lower your monthly payment by refinancing?
● How much are you paying for property taxes and homeowner's insurance? Could you lower your costs by requesting a tax reassessment or shopping around for your insurance?
● If you are paying for mortgage insurance, sometimes called "PMI," could you have it canceled so you could save money on your mortgage payment? Ask your loan servicer for details.
● Have you budgeted enough for home maintenance and repairs? Homeowners should set aside savings to replace worn-out appliances and pay for major repairs such as a new roof. A savings account can be a true home-saver in such situations.
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