Whether you are buying your first home or moving from an old home, there are so many decisions you need to make that it can feel a little overwhelming. After all, buying a house is one of the biggest financial decisions you will make in your life. That is why it is vital that you don’t rush to make your decision likely. There are several ways that you can ensure your finances are compatible with the home you are thinking of buying.
Calculating Your Income
One of the first things that you will need to think about is your income. The amount of money you have coming into the household will directly affect the amount you can loan from the bank. It will also have an impact on other areas of your finances, so it is important that you work it out carefully. Firstly, you need to calculate the combined income of the people in your household, and that will be the baseline from which to work.
Listing Household Expenses
The next thing you need to assess is your household expenses. Although you will have a certain amount of money coming into the home, you will need to deduct any money needed for the household bills and other expenses. It can be difficult to think of all the bills you have to pay, so make a list of them and try to remember those that you might not need to pay every month. These can include magazine subscriptions, car insurance, or medical care. Deduct all of the household items from your household income, and that will be the figure you will have left to spend on a down payment and mortgage. However, these may not be the only things that you will need to pay.
How Much Will Ownership Cost?
When it comes to calculating your house payment, it is advised that you don’t spend more than 25 percent of your household income (which includes any taxes) you need to pay. That will give you a figure which you need to aim for when choosing a house. You might find after you have made these calculations that the home you were thinking of buying is out of your financial range. It is important that you don’t try to overstretch your finances to accommodate the home you want as this can lead to difficulties later.
You should also figure in any maintenance costs into your calculations. Even a new home can have problems in the future, and you need to be sure that these issues can be fixed without there being a significant impact on your finances. Although it might seem unimportant, you also need to make sure that you factor in other things such as redecorating, gardening and other regular expenses that you spend on your home.
Can Your Budget Grow with Your Family?
Many people decide to buy their first homes when they meet their partners. It can be an exciting time, and you may think that you will be able to deal financially with anything that life throws at you. However, you may decide in the near future that you want to have children together, which invariably leads to great expense. When choosing which house, you can afford, you need to think about how the future might pan out for you. If you think that children will be in your immediate future, then your income will need to cover the associated costs of having extra people to support, as well as your house payments. It could be that you can buy a smaller house until you start your family, and when that time comes, you will be able to sell your home and be in a financial position to buy something more suitable.
Having savings that you can rely on when things go wrong is a good way to stay financially stable. However, you might not think that you have the capacity to save anything for the future. When you are looking at your finances for your new home, try to work out if there are any ways you can work savings into your budget. Are there any things you currently spend money on that could be saved instead? You can save money on household bills by regularly reviewing your providers’ rates, but also look at other areas that you can save in: your commute to work, the food that you buy, or the entertainment that you subscribe to. Don’t be put off by the amount you need to save, as small savings soon add up, and will be a good investment for the future.
Choosing the Right Area for Your Home
House prices can vary from area to area, when you are looking for houses in Los Angeles for example, you should make sure to check out the surrounding areas near to where you think you want to live. If your finances are stretched, then you might need to look in cheaper areas to buy. You can also think about the type of house you are buying, in some cases, it can work out more cost effective to buy a house that needs work, and spend money renovating it. The other added advantage is that you can model the home the way you like it, and add or take out features to match your needs.
Another possibility that you can consider is self-building a home when you have identified the area that you ideally want to live in. As with renovation, you can choose how you want your home to look based on your family’s needs. It can be a good alternative for those who need a home that is adapted to a physical need; adding extra rooms and accessible entrances can be difficult for existing homes, whereas new builds can have the access where its needed.
Whatever your financial circumstances are, it is important to go through the process of assessing your budget and making sure that you buy the home that you can afford. As long as you factor in all the outgoings and future expenditure, you should have a home where you can spend many happy years.