A lot of thought and preparation goes into selecting, bidding on, and buying a home. The process will require you to look at several different factors to make the best financial decision possible.
Be aware of what you need to know about affording a house before you commit to anything that could drain your bank account and compromise your financials for years to come.
Your Monthly Spending
Before anything, you need to calculate how much you make every month against your expenses. This means having a clear understanding of how much you make after taxes and subtracting your expected electrical bill, property taxes, grocery expenses, water bill, et cetera. Run your numbers by a separate party to double-check the math; this is a critical step that informs the rest of the process.
Obviously, you need to write off any home whose expenses will exceed your income, but you must also consider writing off ones where the budget will be tight. If you don’t think your leftover income will be able to cover any unforeseen medical bills, car repairs, or home renovations, you need to think about moving to more affordable options.
The Down Payment
Most people put down about 10 per cent of a home’s cost when they buy it. This serves two purposes; the first is that a down payment shows money lenders you’re financially prepared to own a home. Showing them that you’re reliable and responsible will hopefully entice them to offer you a greater sum for a loan. The second purpose is that it will lower your monthly payment: the more money you put down now, the less you have to pay back every month.
However, keep in mind that your down payment should not be everything in your bank account—you’ll need to cover some expenses after you close on the house. You also need to have a safety net in case of unexpected expenses. Have a buffer in your savings account to pay the down payment, but also make sure you have some money left over to prevent difficult financial situations.
The Mortgage Loan
Most people can’t afford to pay for an entire house on the spot; houses can cost hundreds of thousands of dollars, and no one anticipates a buyer to be able to afford that much in cash. This is when you need to look for home loan offices so that you can borrow the money now and pay it back later.
It’s essential that you understand the mortgage you agree to—mortgages can have different guaranteed sums, interest rates, and terms you need to be aware of. Shop around for different loans, and pick the one most beneficial to you with the safest terms.
Protect Yourself
A lot can go wrong during the home-buying process, but it’s critical that you know the basics of affording a house. Neglecting any step along the way can put you in a financial hole that will take years to dig yourself out of. Accept that you may need to walk away from your dream home to purchase something within your price range—you’ll thank yourself years down the line.