You’ve saved up for a down payment, and now it’s time to use it — you’re buying a home. Even with a budget in mind though, it can be easy to sign the dotted line on a purchase that’s out of your price range. Fortunately, you can avoid overspending with the right amount of planning. Here are five steps to take before you bust your budget.
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1. Crunch the Numbers
There’s a bit of math you can do on your own to figure out how much you can spend on your future home. Begin by calculating your total monthly income, using your gross amount and combining yours with your partner’s or any other contributing household member.
That number isn’t your entire monthly budget, of course — you’ll want to subtract your expenses from that figure. Things like transportation, savings and healthcare won’t pay for themselves, and you don’t want your mortgage payment to take away from them either. Include any foreseeable future expenses too. For example, if you plan on adding to your family once you’ve purchased your property, factor in how much supplies and care for your baby will cost each month.
Once you subtract your expenses from your income, you might find that the money you have left to pay your mortgage is lower or higher than you thought. That’s why this practice is an important one — you’ll have a better idea of what you can realistically spend with all things considered.
2. Take the Bank’s Number With a Grain of Salt
Unless you have a very hefty savings account, you’ll have to rely on your bank for a loan to pay the rest of the cost of your home. They’ll take a lot of the above expenses into consideration as well as your income. Then, they’ll pre-approve you for a mortgage with a limit, and that limit may be higher than what you expected you could spend on a new property.
Even if they give you the green light to spend that much money, you could find yourself extremely house poor by doing so. The best way to see how much a home at the top of your budget will really cost is to use a mortgage calculator.
The calculator will account for more property-related expenses, including home insurance and property tax. That way, you’ll have a clearer idea of what your monthly payment will be — and if it’ll be too much to handle with your other bills.
3. Find a Trustworthy Real Estate Agent
The right real estate agent won’t see you as just another commission to earn. Instead, they’ll listen to your needs and keep your budget in mind. They’ll find you properties that fit, and they won’t show you anything that would break the bank.
Of course, not everyone has the best intentions, and upselling you can lead to a bigger payday for your real estate agent. Find someone you can trust. Rely on recommendations from friends or family members. And, if you ever feel like you’re being pressured to buy something you can’t afford, drop your realtor for someone who’s more understanding and respectful of your financial constraints.
4. Make Must-Haves Realistic
You’ve likely envisioned your new home to be an altogether perfect property with all the bells and whistles. Unfortunately, most budgets do not provide for a turnkey home — prepare yourself for that.
As you determine what features your new place has to have, try not to be superficial. Although many homeowners-to-be seek out the right paint colors or finishes, these elements will be easy for you to fix down the line. Focus on the bones of the house — a strong foundation, safe electrical wiring, a functioning water heater and similar features. Without an eye on these details, you could end up in a money pit, and those decorative upgrades won’t mean a thing. You might want to check out this tankless water heater guide to get an energy and cost efficient model.
To that end, you might want to consider a property that’s a fixer-upper to get the structure and space you want without the upgrades you envision. Yes, it’ll take time to make the place perfect, but if you get the home for a low price, you can put the work in sooner. Just make sure the bones are solid before diving into your purchase and renovation.
5. Don’t Compare Your Place to Others
You’re probably not the first of your friends or family members to buy a home. As you look at properties, you might find that they’re not as snazzy as the ones owned by your loved ones. Remember, other people may have had larger budgets than yours or more time to fix their places — don’t increase your bottom line to keep up with the Joneses, because you’ll be beholden to a high mortgage that you can’t afford.
Find joy in the things you can afford instead. Perhaps your new home has a great reading nook, or you’ve finally got a gas stovetop instead of an electric one. Sure, your place might not be your perfect property, but it’s yours — and with the above tips, you can avoid overspending and live there comfortably and happily for years to come.