Finding a new home is an exciting process! It opens up new possibilities and presents exciting challenges that foster personal and family growth. So much time and energy go into choosing the right space that it’s easy to get wrapped up in the excitement and gloss over a few important factors when it comes to budgeting.
It’s important to be thorough and take your time when figuring out what you can afford in the real estate market. It’s equally as important to be aware of the financial responsibilities that follow after you’ve made your investment. When you become a homeowner, the money doesn’t stop flowing when you sign the papers.
Keep these considerations in mind as you determine your housing budget to avoid stress and unexpected financial strain before and after you’ve sealed the deal!
Figure out a detailed budget before you start.
Before you take the leap and dive into a new house—especially if it’s your first time owning—sit down and figure out what exactly the endeavor will cost and what your limits are when it comes to personal finances. Start by adding up your monthly household income and non-housing related monthly expenses like groceries, car payments, etc. Subtract the expenditures from the income to establish an estimate of what you have to work with.
A general rule of thumb to follow is that about 25% of your income should go to your mortgage. You might also want to use the 50/30/20 approach—allocating 50% of your income to needs, 30% to wants, and 20% to debts and savings accounts.
Anticipate regular household expenses.
This aspect of home owning is especially important if you’re going from renting to owning a property. You may need to factor in utility bills your landlord paid when you rented, as well as the regular maintenance and upkeep that goes along with being responsible for a house, such as snow removal, trash, and landscaping.
The real estate taxes in the area you’re moving to are important to keep in mind, as they vary from community to community and can increase or decrease significantly depending on location. Don’t forget about dues for your homeowners association and homeowners insurance either!
Factor in new project costs.
You might find a home that has everything you’re looking for—except a backyard deck! Think about any projects you’re planning to take on when you move to your new home when you plan out your budget. As the new owner, those financial duties fall to you.
It’s likely that you’ll have to make repairs or replace one or more features in a new home, especially if you’re opting for a more affordable house that’s seen some wear and tear. You could end up needing to replace the roof or update the flooring in the bathroom. It’s possible you’ll be aware of these costs before you buy, but you’ll probably run into some unexpected issues to address too.
Don’t forget about other debts.
It seems that one of those cruel realities everybody must face is that we often spend money faster than we make it. Debt you’ve accumulated should be a major consideration when you figure out the budget for your new home. You don’t want to end up in a situation you can’t handle and risk permanent damage to your finances.
Eliminate your debt before you think about increasing mortgage payments, starting with higher interest loans. Factor in student loans, car payments, insurance, credit cards, and any other deficit that needs to be kept under control. The amount of debt you have is going to limit what you can afford when it comes to buying a house. If you can, it’s best to pay off major debts before investing in a home.
Let your down payment guide you.
You’re going to want to put a down payment on your house equivalent to at least 10%—but ideally 20%—of the total value of the property. The more money you put down when you buy, the less interest you’ll end up paying over time. If you can’t afford a down payment in this percentage range, you need to refine your search for places that better fit your budget.
In an optimal scenario you’ll be pulling funds for your down payment from your savings and the current market value of your home. If that’s not feasible you can always turn to your retirement or emergency accounts as a last resort or take out a homeowner’s loan.
Don’t forget about the cost of the move!
Before you know exactly how much money you’ll need to put into your home, you’ll have to be able to get there! It’s important to factor in the—sometimes unexpected—costs of moving into your new house. The best way to get the most out of your dollar is to hire a professional moving company that cares about your needs.
Summit Moving & Storage understands how hard the moving process can be on your family and your wallet. That’s why we offer affordable local and long-distance moving services for everyone in the Fraser Valley area. Contact us today to learn more about the work we do and how we make it fit your budget!