Buying a home is a huge investment, the biggest investment most Americans will make in their lifetime. And for that reason, it can feel very overwhelming and often, unattainable. However, creating a budget can and will get you closer to achieving that dream. Let’s talk about budgeting tips for buying a house.
With mortgage rates continuing to hover at record lows, there is no better time to purchase a new home. Or if you’re feeling crammed in your current home and are thinking about upgrading to a bigger home, with low interest rates, you definitely will get more bang for your buck.
There are a few things to consider though before pulling the trigger on buying a new home.
Set a Budget
Putting pen to paper and determining a budget will undoubtedly help you realize your spending and discover ways to save for a down payment.
1) Calculate your monthly income;
2) Add up fixes expenses such as rent/mortgage, electricity, and water;
3) Review your discretionary spending;
4) Subtract the total of 2&3 from 1 to determine your budget.
Shape Up Your Credit
Applying for a mortgage loan is like interviewing for a job; you want to make a great first impression. In this case, it starts with your credit score – the higher, the better. You can get a free copy of your credit report and your credit score here.
- Review your credit report. Look thoroughly through the report for any mistakes and close any open credit cards you currently are not using.
- Review your credit card statements. Be ready to put discretionary purchases on the chopping block to remain within your new determined budget. For example:
- Review your streaming and music apps. Cut anything you are not using or can do without.
- Regular visits to Starbucks? Brew your favorite coffee at home.
- Grocery budget overextended? Order your groceries free online and pick up in the parking lot, avoiding unnecessary temptations.
Finance experts suggest reviewing about six months of expenditures to grasp a clear picture of your spending habits. There are also online tools that can help categorize your spending to see where you need to pull in the reigns.
Pay Yourself First
Financial planners will always tell you to pay yourself first, meaning, put money aside for retirement. That same idea can be applied to saving for buying a home. You’ve got your credit in order, a budget established, and now it’s time to start saving.
Determine the amount of house you can afford and what type of mortgage payment you’d like to have. There are online calculators that can help you determine an estimate based on your down payment, current interest rates, and the length of your loan albeit 15, 20 or 30 years. To get an even more precise amount you may want to include third party expenses when buying a home. The most common additional fees you are likely to encounter are:
- Home Inspection – determines the condition of the property
- Appraisal – is necessary to determine the fair market value of the home.
- Credit Report – a history and score is necessary to qualify for a loan.
- Title Service Fees – a thorough search of property records is conducted.
- Survey Fee – a survey determines the boundaries of the property you are buying. Not always a necessary in buying a home but is sometimes warranted.
- Escrow/Closing fee – paid to the company for conducting the closing.
- Attorney’s fees (in some states)
- Flood Determination & Coverage – determine whether a property is in a flood zone and requires flood insurance
- Government recording fees
- Pre-paid interest
- Property Taxes
- Lender’s Origination fee – includes processing, underwriting, loan discount points
A loan officer can also help break down these additional fees and give you a ballpark on what your monthly payment will look like. To determine how much you should begin saving, subtract your current housing payment from the estimated mortgage payment. Having a thorough understanding of your finances and setting a plan in motion, will ease the stress when you are ready to pull the trigger on buying a home.
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