In the excitement of buying a home, particularly your first home, it can be easy to overstep your budget. Before you start shopping, it’s a good idea to draw some realistic conclusions regarding what you can really afford—and then make sure you don’t get carried away.
What You Are Approved For Versus What You Can Afford
When you walk into a mortgage broker or lender’s office, you may find yourself surprised at how much you are approved for. But before you get excited, remember that how much a bank approves you for isn’t necessarily an amount you can realistically afford.
While the bank reviews your credit and finances, they don’t know details such as how much money you spend on entertainment or groceries each week. Sit down and do a realistic budget, looking at how much you spend monthly and where you might be able to cut corners. Then decide what you can really afford each month—and don’t forget to add in the cost of property taxes and insurance.
Look Into The Future
Your budget today may be very different in the future, so it’s a good idea to think ahead. One of the biggest impacts on finances is the birth of children. Not only do they come with the cost of feeding and care, they can also deeply impact your income if one of the parents decides to stop working and stay home. If kids are in your future plans, be sure to count that in your home buying budget.
Future maintenance, upgrades, and repairs on the house should also be taken into consideration when determining your home buying budget. Do you plan to remodel a bathroom? When will it need a new roof? The costs can affect your budget.
You should also make sure you are prepared for eventualities that could affect your ability to pay for your home. If you are barely able to make the mortgage payment, any reduction in your income could put you in real trouble. Give yourself some breathing room.
Avoid Being “House Poor”
Buying a house at the very top of your budget may impact your ability to do some of the other things you enjoy in life, such as travel. It can also leave you with a very tight budget for everything else you need, like transportation, food and clothing, and other basic needs.
It’s easy to let your price creep up beyond what you can really afford when you start seeing beautiful homes that you can just barely manage to buy. Stay realistic with your budget and you will make sure you can not only afford your home, but also afford to enjoy living there.