It is every family’s dream to own a home. Mortgaging a home is a preferred option for families and individuals with no upfront cash to make a full settlement. However, this being a huge financial commitment it comes with a substantial long term financial burden which calls for a home buying budget.
Importance of creating a budget before applying for a mortgage
Proper budgeting presents you with the best chance of getting approved by a financier when applying for a mortgage. It is at the budgeting stage where you assess your needs for a home against your financial abilities and make appropriate decisions. Failure to do a proper home buying budget could result in stress on personal/family resources. If the worst comes to pass, it could result in the loss of your home even before you gain full ownership.
Here is an outline of ways to create a budget
Assess your financial ability
By assessing your financial ability, you will come up with the amount of money you can afford to spend on acquiring your home.
- You will need to figure out how much money you have, after settling monthly dues. The amount remaining will determine how much you can afford to borrow for your mortgage on a new house. It is advisable that your mortgage be approximately within 2.5 times your annual salary, in order to pay it down within a reasonable amount of time.
- Start with your monthly household expenses. By doing this, the remaining amount will ensure that you are meeting the needs of your expenses while settling your mortgage. Making sure that you are within your monthly budget for costs of living will aide you in leading a comfortable lifestyle.
- Figure out where to cut back, if your must. From the list of monthly expenses, you can find areas where you could adjust. It could be in the form of any unnecessary expenses and other luxuries you could forgo.
- Save for a deposit. Most lenders will need you to pay at least a 20 percent upfront before you are approved. While this can be a burden to some, saving up your deposit over a set amount of time will ensure, not only that you 1)have the deposit at the ready and 2) are not going to be pressed by your budget when the time comes.
The cost of maintaining a home is in most cases proportional to its size. Mortgaging a home can take a life time to settle. It is very important when buying a home to assess the extra costs such as gas, electricity, insurance, taxes among other costs of maintaining your new home. Before you make the purchase, make sure that you will be able to afford the cost of living in your chosen area.
Get financially approved by lenders
You should get approval from a financier before you go home hunting. The realtors will treat you with more seriousness if you come armed with an offer. To improve your odds of approval, it is beneficial for you to settle your debts, if any, and check your credit scores! Lenders will assess your credit score before they decide on loaning you money, making sure you know what is on your credit report (along with being able to make improvements) could be key in getting an approval for a home loan.
Check the market before making an offer
Before you make an offer, do the rounds and compare different homes. Analyze the pricing versus quality. Assessing the market will help you get fair pricing for the home you intend to acquire. With adequate information, you will be able to make the right decisions and bargain adequately.
Tips that will help you stick to your budget
Sticking to your budget needs careful planning. This will enable you to anticipate and eliminate any possible overages in the budgeted finances. By proper planning, you will be able to do away with the overhead costs that could strain your finances in the future. When it comes to buying a home on a budget don’t be afraid to ask a professional for assistance. Often times, meeting with a lender can aide you in creating a budget for future home purchases.
Give your budget time to grow
Mortgaging is a long-term financial decision taking years to settle. A lot of changes that affect your finances could occur in your life over time. You need to consider factors that could come to play affecting your budget in the future like having a family. While there are options of refinancing your mortgage, it is best to be prepared with knowledge and contingencies.
Calculate home ownership cost
These costs include maintenance costs and taxes. You should calculate the expenses that will come with owning the house you intend to acquire. Weigh the expenses against your current finances. You do not need to purchase a home that you will not be able to comfortably maintain in terms of bills, repairs, and taxes. Home repairs can be costly and unexpected.
Certain costs may occur depending on the location of your home. Will you be living in a HOA? Are there going to be additional fees within certain city limits? Or even additional costs due to daily transport. It is important to know all of the possibilities before purchase. Do your research.
Knowledge is your best friend when looking to mortgage a home. Whether you are looking to finance a new home or refinance your existing loan, being able to stay within your means is important. Know your budget, know how to stay within your means, and enjoy saving money for your new home!