Buying a New Home? How to Find the Perfect Fit for Your Budget
You know exactly what you want in a home—right down to the number of bedrooms, carpet color, and backyard size. But do you know your budget? Many potential homeowners make the mistake of guessing at what they can afford. In some cases, these people later learn that they should have bought a home that was worth more or less than the one they settled on.
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To avoid settling on a home that doesn’t quite fit your budget, you first have to set your budget. Here are a few tips to help you do just that:
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Evaluate Your Income and Expenses
You should never go home shopping without first evaluating your income and expenses. Are there multiple earners in the home? How often to you receive a paycheck? Tally up all of the monthly earnings to determine your total monthly income. Hopefully you are bring in more money that you are spending and that you are putting some of that income away in case of a “rainy day.”
Once that’s done, spend a few months keeping tally of your weekly expenses. You may already be doing this! Make sure to account for money being spent on groceries, savings, rent, utilities, etc.
Once you have an idea of what you earn and spend, you can better determine how much money you have for a monthly mortgage payment. If you can manage to over pay just a little bit on your monthly mortgage payment then you will be able to pay down your principle. This also helps your credit score which will allow you to make other big purchases later down the road.
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Calculate the Other Costs of Home Ownership
The costs of owning a home don’t come down to one simple monthly payment. You can also expect to pay for:
- Utilities
- Property tax
- Homeowners insurance
- HOA fees
And much more! Talk to other local homeowners and learn what they’re paying in each category. Keep in mind that their payments will vary as the interest rates may have been different at the time they bought their home versus the time you are buying yours. HOA fees may also vary from neighborhood to neighborhood and from home to home.
Your utilities will also vary as some people use them more than others. You may have some other expenses that other people don’t necessarily have. Make sure you factor those into your budget. A mortgage calculator can help give you an idea of how this will all work with your monthly expenses (Source: Sente Mortgage, a mortgage calculator in Austin, Texas).
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Plan for the Future
Will you be adding kids to your family, down the line? How is your job security? Do you have a savings safety net? Applying for a mortgage is a big commitment—one that will affect you for years to come.
Be sure to evaluate all the factors in your life that may change. Plan your budget accordingly. Things will happen that will be out of your control and you want to make sure that you have adequate funds and insurance when those kinds of things happen.
Once you’ve planned for all scenarios and evaluated your monthly earnings/expenses, you’ll be ready to start shopping. With all of this information in hand, you can begin to familiarize yourself with the market.
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One final tip: don’t sacrifice your savings account in an effort to buy a bigger and nicer home. When unexpected scenarios occur, you’ll be grateful for your financial safety net.
Take your time while shopping and stick to your budget. Eventually, you’ll find the best deal for your money and a place to call home.
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Category: Housing
