If you’re currently paying rent and want to buy, you may find that your housing costs drop after purchasing your home. However, houses can be more expensive than renting if they need repair. The tips below can help you figure out how much home you can afford to buy.
1. Consider the Percentages
Many financial experts recommend that your mortgage payment be no more than 25% of your gross income. Note that this percentage includes taxes and homeowner’s insurance, which should come out of your escrow account. Your rent may be higher than that at this time.
2. Buy for the Next Five Years
If you and your partner are just starting your family, a smaller house may be the best option. A skilled realtor can help you buy a house that will suit you for the next five years. During this time, you can build equity and savings. A larger house right now may be out of your price range.
3. Look for Amenities
If you know the city that you want to live in, review neighborhoods for ideal features.
You may find an acceptable house for you and your family in an amazing neighborhood. Once you’re settled in, you can be the first person to know when a more suitable property is going up for sale.
4. Guard Your Savings
Saving for a down payment on a home can be the hardest work that you do. Make sure you tell your realtor if you’re a first-time homebuyer or if you are a veteran; there are programs available that can help you find a home with a smaller down payment in such circumstances.
Yes, a larger down payment can lower your monthly mortgage bill. However, getting into your home with little to no savings may force you to borrow at a higher interest rate for any necessary updates or repairs. Set a budget for cosmetic updates and take your time with them. Make sure you have savings to cover emergency repairs or replacements, such as large appliances or an HVAC system.
5. Keep Your Commute Short
Pay special attention to your driving routes. Will your commute be greatly increased? Will that mean that you have to replace or purchase a vehicle? These updates can add to your overall debt burden.
If you have a reliable vehicle, consider ways to put your commute to work for your household. Perhaps your commute takes you by your regular grocery store. You can order your groceries for pickup, reduce the number of errands you have to run in your free time, and save both fuel and effort.
6. Review Your Utility Costs
Study the utility costs of your intended home purchase. Is the home older? Heating and cooling it may cost more. Is there a large yard that you will want to keep green and lush? You’ll pay more for water. All of these costs may be worth it, but they will impact your budget.
Buying a home is one of the best ways to build wealth over time. However, in a tight market, you’ll need to be extremely careful about your purchase. Focus on your percentage of income, not your current rent payment.