The Best Guide To Establishing A Homebuying Budget
The homebuying process can be both exciting and frustrating. Attending open houses and house hunting makes you excited about something new. Not being able to buy a home can put your dreams on pause. In this case, you should establish a homebuying budget. This step-by-step guide will help you create a budget that works for your income.
1. Calculate Your Income And Expenses
The first order of business is to calculate your income and expenses. You need to take a hard look at your spending habits as well. When you know how much you can put toward your home, you can consider other monthly expenses, which include the following:
- Credit card and other debt payments
You can further break them down further by category. This can help you determine which are necessities you can’t go without. Getting moving house financial advice can help you in this area if you’re a chronic shopper. This gives you more room in your budget to buy a new home.
2. Determine The Down Payment
Next, you should determine the amount of money to put down. The down payment can help you calculate the potential loan principle for your dream home. The amount of money you need to set aside also depends on other factors, such as the type of loan and the lender. The amount can range anywhere from 3% to 20%.
However, some lenders will only require less than 20%. You may be in favor of a higher down payment. Only do it if you can afford it. There are benefits to a higher down payment, like a lower interest rate and private mortgage insurance.
3. Don’t Forget The Closing Costs
The down payment shouldn’t be your only priority. You also need to budget for the closing costs when establishing your homebuying budget. The closing costs also include the appraisal fee, credit report fee, government recording charges, your lender’s origination fee, and the tax services fee.
Closing costs can range from 2% to 5%, depending on the price of your home. If you purchase a home for $300,000, you should set aside between $6,000 and $15,000 for the closing costs.
4. Create A Budget And Savings Plan
Your lender will advise you that you shouldn’t spend over 30% of your gross monthly income on your monthly mortgage. Also, you shouldn’t spend over 35% on debt, including credit cards, mortgages, and student loans. Your budget and savings plan can help you get a better idea of your current living expenses and future expenses, including an upcoming vacation, wedding, or new car.
Your savings plan should also have enough for unexpected emergencies such as car repairs, health issues, job loss, and extreme weather events. This offers some financial protection. When calculating your monthly spending, you should set aside money for apparel, childcare, education, food, medical, shelter, and transportation.
5. Plan For Payments
Now that you have a better idea of your monthly expenses, you should plan your payments. This helps you determine if you can pay your mortgage payments. Your lender will advise you to get a mortgage that is similar to your rental payments. You should also consider service charges if the property is a flat. This is something you’ll factor into your monthly mortgage budget.
A budget should be the first step of the home-buying process. You should consider your monthly income, your monthly expenses, and your monthly mortgage payment. Having a budget in place can help you find the right home you can afford.
