Think you’re ready to own a home? You may have determined things look financially viable for homeownership, but just how much home can you afford? The following tips will help you in answering these questions.
Let’s start with your budget. It may seem obvious, but building a basic budget for your homeownership can prevent overextension. The last thing you want as a new homeowner is to be weighed down by your mortgage.
Position yourself comfortably. Many first-time homebuyers will make the mistake of pushing the limits of their loan. What you get approved for, may not actually work well within the confines of your budget. Be mindful of your future goals and plans that will make paying your monthly mortgage difficult, such as starting a family.
The following is a simple way to decipher a basic budget structure for your mortgage: Take the sum total of what you make monthly before taxes. Multiply that figure by roughly 28%. The result should give you insight into what a manageable monthly payment will look like. Keep in mind there are additional fees such as taxes and insurance that will affect your monthly payments. This is why it’s important to find a middle ground in your loan, depending on your budget.
Turn to your current rent payment for additional information. Your current rent payment can help you determine if a potential mortgage is out of the question. Renting is similar to paying a mortgage, in the sense that these funds are going toward your living situation on a (usually) monthly basis. If your potential house payment significantly bypasses what you’re currently paying for rent, exercise caution.
Are there any costs you can cut out of your budget entirely? This is where online budgeting calculators can further be of assistance. What are the necessities of your budget, payments that must be attended to? Versus fees you currently have that are tied to non-essential costs? This is where budgeting websites and apps can help put your limitations in context. A simple google search will yield a variety of different programs and websites. Research these websites to help you decipher which one is most relevant to your specific needs.
Budget concerns aside, how much home do you really need? Are you investing in a forever home, or a starter home to get your foot in the door? These are important questions to ask yourself in the beginning, as they will affect your homeownership decisions going forward. Assess your goals and future plans, factoring in the possibility that your needs will likely change over time. If you don’t plan on staying in a home for the long haul, consider being a bit more frugal in your first-time purchase.
Are you in any debt? What about outstanding fees like student loans? If you have other financial responsibilities you are on the hook for, make positive you are not curtailing those fees. Debt is not an automatic nail in the coffin for first time buyers, but it does make things a bit more complicated. Your level of debt will factor into how much monthly income you can realistically set aside for your house. If you’re in a significant amount of debt, it’s probably wise to hold off on the home ownership track until you feel more comfortable and secure in your payments.
Consider the hidden costs of a home you’re interested in. Sometimes when home buyers find a house they’re interested in, they start imagining how the house would look under their ownership. This can include making mental notes of things they would potentially change. If you like the bones of a house, but would like to remodel or overhaul certain spaces, be mindful of how these decisions will fit into your budget. Additionally, don’t forget the closing costs of the buying process and other fees that may accumulate as a result of the sale. Some neighborhoods have home owner’s associations which will also raise your fees depending on their requirements. First time homeowners may even be surprised at the simple costs of maintenance. Home inspections during the buying process will usually help in sniffing out potentially dangerous outliers. Be mindful of red flags, especially if they could be very costly to fix in the future. Consider sanctioning off some of your savings in the event that something goes awry. Even homes that are well taken care of can experience flukes or freak accidents that require repair.
Get additional help from your moving team. Seasoned realtors can often see problems in a home that buyers may be oblivious to. Additionally, a loan officer will help you determine the best course of action for you in regards to your potential mortgage. Heed the advice of your team along the way. When it comes to first time home buyers, getting help from professionals is usually a surefire way to better buying practices. The home buying process can and should be very exciting, but always exercise a healthy amount of caution when setting your budget.