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Extras make home payments climb

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Look at demand, too, since that can signal climbing values and increasing tax rates, says Michael Turner, senior vice president and director of development for the National Foundation for Credit Counseling.

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When he and his family recently bought a home in Loudoun County, Va., "I knew that the growth rate was exploding," Turner says. So he banked a little extra, just to cover any anticipated tax increases.

"I had a buffer," he says.

In some states like California, state laws limit tax hikes while the property is owned by one person, but the tax bill can change, sometimes drastically, when the property is sold, Fratantoni says. So a copy of the current tax bill "may not be enough information," he says.

Instead, look at tax bills for the past few years. Also consider how demand will factor into future bills. Call the local municipality offices and find out what kind of bill you could expect if you bought the house.

Then, when you get a fairly realistic estimate, add one-twelfth of that amount to your payment every month.

Private mortgage insurance: Otherwise known as "PMI," private mortgage insurance protects the lender if you should default on the loan. It's tricky to calculate because the rate depends on your credit rating, the amount of money you have in reserve, the amount you put down, the type of loan and the price of the house, says Gavre.

"It's hard to give a rule of thumb because it's very individual," she says.

Typically, PMI is required when the borrower takes out a private loan and puts down less than 20 percent of the mortgage. Once the homeowner has paid 20 percent of the principal, he or she often can discontinue PMI. With some government-backed loans such as VA and FHA mortgages you don't have PMI, but there is an equivalent fee.

For a general guide, if you're paying PMI, estimate between $140 and $300 for a $200,000 home, says Gavre.

One additional factor to consider: Thanks to a recent change in the law, mortgage insurance is tax-deductible on mortgages taken out in 2007. That can mean substantial savings and tilt your decision. However, there are some caveats to consider. For a complete look at what the new law means, check Bankrate's story, "New tax deduction created for mortgage insurance."

Are you considering one of the piggyback mortgage products that will allow you to essentially take out a second loan to cover the cost of the down payment?

To get a true apples-to-apples comparison, you need to compare the cost of a one-mortgage option with PMI to the multiloan product, says Fratantoni. "It's worth looking at both," he says.

Association dues: A number of first-time buyers (and some empty-nesters) decide that a condo is a good way to get or stay in the housing game without many of the outdoor maintenance issues and other homeowner hassles. But, if you decide to buy a condo, remember to add the monthly association fees into your obligations.

Fees vary depending on the property, the amenities and the services (such as water or garbage collection) included. To be on the safe side, budget about $200 to $225 per month, if you're condo shopping.

Maintenance: Budget for the unexpected.

When you live in a house, things go wrong. The water heater quits, the roof springs a leak or you have to hire someone to clean the gutters or paint. The smart thing is to put aside a little every month when you make your mortgage payment. A good amount: at least $100 says Gavre. 

But adjust the estimate to your situation, says Fratantoni. "A new house with a new roof and new appliances is probably in better shape than a fixer-upper," he says.

OK, so if you've been keeping track, the "extras" on a $200,000 home can add between $364 and $614 to your monthly payment. If you get a 30-year loan at 6 percent, that means your monthly payment could range between $1,564 and $1,814. That's not including condo association fees or a nest egg to cover future maintenance needs.

Experts suggest you have a reserve fund with several months' worth of payments. How much will vary on the lender, the loan and the down payment.

Gavre recommends "three to four months" of monthly mortgage payments in reserve.

But Fratantoni believes that, depending on the circumstances, you might be able to make do with less. "Typically a lender is going to want a borrower to have at least two months of monthly payments in reserve," he says.'s corrections policy-- Posted: Dec. 28, 2006
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