Calculating a Home Buying Budget
Calculating a Home Buying Budget
Buying a home will be one of the most important decisions in your life. It is an exciting time as you are looking for homes, yet it can also put a lot of hassles and stress to your finances. By figuring out how much of a budget you need, you can set aside enough money so you can easily make all the necessary payments that are associated with homeownership.
Here are several aspects to take into consideration when creating your budget:
Calculating How Much of a House You Can Buy
Many home sellers and real estate agents will tell you how important it is to get pre-approved for a loan before buying a home. Not only is it convenient so there are less delays with the closing process, pre-approval can give you an idea on how much of a loan you may be able to get and your payment term.
It also helps you search for homes that fit into your coming mortgage loan budget so you aren't struggling with making payments. There are tons of mortgage calculators you can use online to figure out how much of a house you can afford to buy based on several factors, such as your income, debt-to-income ratio and other expenses.
Figure Out Your Take-Home Income
You need to understand your income after taxes to figure out if you can make the house payment and other related expenses. Check out all the funds you are bringing in from work, and other income sources. You will then have a better idea on the amount of money you will have to spend per month.
Figure Out What Expenses Will be Eliminated
When you are renting a home or apartment you may have additional expenses, such as paying for a separate garage space, pet payments, and renters insurance. These expenses will be eliminated when you purchase a home, so you need to factor this cost-savings into your finances when creating a working budget.
Understand any New Expenses
While you will be eliminating certain expenses when you go from renting an apartment to owning a home, you may have new expenses that appear. If utilities were included in your rent, you will need to factor how much money you will spend on your utility bills. You will also have to make special payments such as property taxes, homeowner's insurance, and homeowner's association dues.
Home Search Costs
You may incur costs when searching for a new home, such as traveling to open houses and getting inspections done. While the seller may get an inspection done so they can determine the value of the property and to look for damages that need repaired, it is always a smart investment to get another home inspection done. Your home inspection can be used to see if the first inspector missed any damages that should be repaired by the seller and to determine the quality of the repairs that have been made.
Most of the closing costs that a buyer has to pay are included in the mortgage loan. However, it is still a good idea to understand the fee amounts and how the play into your mortgage loan. You will typically get a loan estimate form that will list these fees, such as title insurance, recording fees, and notary fees that you can review before the closing transaction occurs.
If you don't have a rough estimate on how much it will cost to purchase a home, you can find yourself not having enough money to go forward with the closing transaction as you'll end up putting your home purchase on hold. Make your budget before your home search so you can spend more time searching for a home and less time worrying if you can pay for one.