15 Mar Budgeting 101: First Time Home Buyers
So, you’re ready to buy your first home? Congratulations, this is an exciting time in your life! But it can also be a little overwhelming.
There are a lot of unknowns that come with home ownership, especially for first time buyers, therefore choosing a home you can afford is super important. But affordable for one person can be completely different for the next person. With a little inside information, you can eliminate confusion and make the best purchase decision possible.
Eliminate your debt first.
If you haven’t entered the housing market yet and have a high amount of debt (student loans, credit card debt etc.), you will want to consider paying it down first. Not only will it be harder to pay your debt off with the addition of housing expenses, your debt ratio affects your mortgage terms and interest rate.
Bulk up your down payment.
A bigger down payment helps you minimize borrowing. The more you pay up front, the smaller your loan. This means that you will pay less interest over the life of your mortgage and you can expect lower monthly payments. You’ll also have the added value of equity at an early stage.
Don’t confuse your qualified amount with your spending amount.
It’s important to understand that just because the bank approves you for a $500,000 loan it doesn’t mean that you can afford a $500,000 home. There are many factors to consider including your monthly mortgage payment, annual taxes, utility bills and home insurance.
The best way to figure out what you can afford is to start with a monthly budget. Review your income and your expenses and estimate how much you think you can afford to spend on a mortgage payment. You can then talk with the bank or use an online mortgage calculator to figure out how much you can spend on a house.
Have a home emergency savings account.
If you haven’t already started an emergency fund, do it now. Set aside some cash each month for the what ifs. As a homeowner you will be responsible for the cost of repairs and upkeep of your home, and it’s inevitable that an emergency will pop up at some point. Whether it’s a leaky roof or a broken appliance, it’s best to have a cushion in place for when the time comes.
As with most important decisions, entering the home ownership market should be done so with careful thought. Educate yourself on the process and enlist the help of family, friends and financial experts.