For most people, buying a house is the largest purchase they will make in their lives- so it goes without saying that this is not an impulse buy but one in which preparation and research is key. Before you even begin considering signing your name on that dotted line, you need to ensure that your personal budget is in check. By fine-tuning your finances and looking at a home purchase as a lifelong investment, you can buy your new home with minimal monetary concerns and a happy outlook for the future. These ten tips will help you get your personal budget in shape, get the best mortgage for your money, and finally buy that new home you have been dreaming of.
1. Figure Out Your Household Income After Tax
How much money do you actually have? Check your pay stub or use an online income calculator and find out how much money you are left with each month after taxes.
2. Make a List of All Monthly Household Expenses
Next you need to write out all your monthly expenses like bills, utilities, insurance, as well as groceries and any extras such as tuition. The number you have left is your expendable income. Mint.com offers a free online budget plan that organizes your spending and tracks outgoing expenses.
3. Know Where to Cut Back
Once you have all your expenses down, take a look and see if there are areas that you can improve upon. Maybe you are spending more than you expected going out to eat or paying for a service you no longer use. Make adjustments so that you can put as much money as possible into savings and paying off outstanding credit cards and loans.
4.Pay Off Debt
While you can technically buy a house with debt, it is much easier to not only be approved but have a handle on your mortgage payments when you don't have to worry about outstanding debt. It will also improve your credit score, an important determinant factor when purchasing a home, by minimizing what you owe as much as you can.
5. Save for a Deposit
Though the economy looks to be on the up, lenders are still being extra cautious about lending money. Many require at least a 20% deposit- if you are purchasing a home for $150,000 that would mean you need to put down $15,000 up-front. It may seem like a big chunk of change, and it is, but if you focus your personal budget on saving towards that payment it can definitely be done and improve your chances of getting approved.
6. Buy Realistically
If you buy more house than you can realistically afford, it will eventually catch up with you. Most lenders advise that you can buy a house that is around 2.5 times your annual salary. The total housing cost needs to include not only the mortgage, but also other expenses such as maintenance costs and homeowner association fees.
7. Get Pre-Approved
To really put your best foot forward, it is advised to get pre-approved from a lender before you start house hunting. When you are ready to put down an offer, you will be taken more seriously because they know you are already ready to go ahead with the sale.
8. Hire a Home Inspector
Hire a home inspector, separate from the appraiser required by the lender, to find any potential problems you may need to deal with in the future. This will also protect you from getting into unforeseen major issues before the property is yours.
9. Check the Market Before You Make an Offer
Before you make an offer, check similar homes in the area to make sure you are paying a fair price in the local market. It could be a potential bargaining chip if the property you want is priced higher than other homes in the neighborhood.
10. Buying a house
By taking the time to get your finances in order, save for a deposit, and research the market thoroughly- you are ready to buy your new home with confidence.
Buying a new home will be an exciting chapter in your life, do it right, and reap the benefits of a secure and happy future.
Jessica Galbraith is a full-time writer and author.