Buying a home is a big, exciting decision, one that warrants a lot of forethought and planning. Of course, the fun stuff like perusing online housing sites, driving through neighborhoods, and daydreaming about the style and decor of your dream home are the fun aspects of house-hunting and planning. The budget on the other hand isn’t as fun to think about, but it is, of course, one of the most important criteria in your home search. Buying a dream house that ticks all the boxes is wonderful, but if it causes you to become house poor, it will quickly lose its dreaminess! Here are 4 keys to determining a budget that will help you not only choose the home for you but also one that keeps you out of the poor house.
Key #1: Determine all income streams
The first step in determining a budget for your new home is adding up all of your income streams. Knowing exactly how much money you have coming in each month is essential to creating a realistic budget. The golden rule is that you don’t want a mortgage that is more than 25% of your total income.
Key #2: What are your expenses
Determining all your expenses is Key #2. Write out everything that you spend money on while keeping in mind that you need to plan and save for the future (retirement, a family, vacations). Of course, determine how much you spend on utilities, rent, food, insurance, health, transportation, recreation, and anything else that you have to or like to spend your money on (like buying shoes or going out to eat and drink a couple of times a week). It is key, to be honest with how much you spend and how much you can or can’t give up.
Key #3: Calculate your mortgage and more
Home ownership is a costly endeavor that goes beyond your mortgage. That 25% of your income needs to include the property taxes, insurance, as well as principal, and interest. You will also need additional Private Mortgage Insurance (PMI) if you aren’t able to put 20% down on your home, and if you live in an area that has Homeowners Association Fees, you will need to budget that in as well. Things break down, whether it is a water heater, new gutters, or replacing a doorknob, so it is important to budget a certain amount each month to have when you need to replace or fix something in your home.
Key #4: Adapt your budget
Now that you have a good solid budget going, determine if you can live with it! If you only have $300 budgeted for food, but you love to entertain, you might want and need to adjust the food category and take some funds from another category. Be realistic and make adjustments to get to the number you need. Also, think about the future and what needs you might have. If you want to start a family, go to school, or will need a new car, be sure to factor them into the budget so you aren’t good now, but struggling later! And, be willing to wait and save if you aren’t able to afford the type of home in the location you want.
Purchasing a home is a wonderful adventure. It is amazing to put your stamp on a place and have your own private oasis, and it can be a wonderful investment that will help you earn equity. By budgeting and planning, and with the help of the wonderful agents at 616 Realty, you can find the perfect place to lay your head without being tied to it!