- The Washington Times - Thursday, January 6, 2005

The new year has begun, and this is a great time to look at the true cost of your housing to see where you may need to adjust your budget. You may find you need extra money for upkeep, or you may be able to slice your budget.

When a buyer shops for a house, the lender generally will take into account that 28 percent of income will be used for the mortgage payment. Some mortgage plans allow more. A mortgage program I used had only one ratio, 41 percent, meaning that all my debt — including mortgage and credit cards — could not exceed 41 percent of my gross income.

Well, looking at your mortgage ratio shouldn’t be confused with planning for your overall housing ratio. There’s a lot more to housing expenses than just the mortgage payment. Nevertheless, let’s start with that monthly payment and see how you can chop it up to save money.

• PITI. The mortgage payment, for most people, is made up by the principal, interest, taxes and insurance (PITI). As you plan for budgeting this year, first look to see how you can rearrange these numbers.

Have you been watching rates? They are well under 6 percent again. If you missed the huge refinance boom of the past five years, now is a likely time to reconsider taking advantage of lower rates.

Bankrate.com reports a 30-year fixed-rate for as low as 5.204 with two points from one lender. (Keep in mind, a point equals 1 percent of the value of the mortgage, i.e., a point on $200,000 would be $2,000.)

If you’re looking to remove your mortgage altogether, then don’t overlook the 15-year mortgage rates, which early this week stood as low as 4.710 with 2 points.

If you’re looking to refinance, look at the bottom line as much as the interest rate. The fees for getting into a mortgage can outweigh the savings garnered from the low rate and corresponding low payment.

If it would take you 10 years to get your money back from the low rate because of all the fees you paid up front, it might not be worth it to refinance. Check the fine print and compare the fees as much as the interest rate.

• Utilities. Here’s another big part of monthly household expenses that many homeowners don’t really budget in the home-expense category.

Electricity, gas, water, cable/satellite, trash removal — even your phone expenses (wireless and land-based) — are all part of the utilities world now.

How much are you spending? Is it within your means, or are you overspending, taking away from being able to get outof debt?

If your goal this year is to remove all debt, then start here — economize the electricity, gas and water; cut the cable or satellite; and shop your waste-removal vendors. I’ve seen some cable or satellite bills exceed $125 per month. That money could be used to hammer down credit card debt. The cell phone, as well, has become an expensive “need” — read luxury — for many families, when you consider that each kid has a phone with at least a $30 monthly bill attached to it.

• Homeowner’s insurance. Call your insurance company to find out if your coverage is up to date. You want to determine if you’re carrying enough insurance to replace your home in case of an absolute loss.

When you talk with a customer service representative, don’t be surprised when the replacement-cost figure they quote is less than the home value you ascertained from the appraiser. The insurance company is looking to only replace the house, not the land, thus the replacement cost will most likely come in under the market value. Shopping this policy could also save you a few hundred dollars per year.

m Taxes. Are you being charged too much in property taxes? Tax offices across the country are moving their records online, making your search into your home’s past a lot easier. Once you get to your record, investigate whether they have you listed for the proper number of bedrooms, baths, finished area or garage. An improper designation on your record could mean you’re paying way too much in taxes.

• Maintenance. This is a category we tend to forget to budget. Landscaping, lawn upkeep, paint, pest protection and weatherization can add up to hundreds of dollars per month. For some homeowners in larger properties, it can even be $1,000 per month.

Don’t forget to include these expenses in your monthly spending plan: Lawn and landscape care — weed killer, seed, fertilizer, lime, mulch, perennials, annuals, fence repair, grass bags, tool maintenance (gas, oil, filing, replacement blades), equipment rental and anything else you may use to keep your curb appeal more appealing.

• Irregular large expenses. These crop up and need to be considered: driveway repair, new gutters, roofing, window cleaning, deck or siding power wash, pest inspection and repair, chimney sweeping, and other annual or biannual expenses.

Let this be the year you get a handle on your home care cost and control the spending so that you can begin investing.

M. Anthony Carr is the author of “Real Estate Investing Made Simple.” Post questions at his Web log (https://commonsenserealestate.blogspot.com).

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