Think You’re Ready To Buy Your First Home? How To Figure Out What You Can Afford

| April 21, 2014

Think You're Ready to Buy Your First Home - How to Figure Out What You Can AffordSo, you are thinking of plunging into the exciting world of home-ownership. This is a thrilling time of transition, however it can get overwhelming for first-timers. Buying your first home is a huge step, and before you jump into house hunting you need to know all the facts, and have a plan. Before you can start looking at houses, you need to know what you can afford. It won’t do you any good to start the house hunting process without a good idea about which homes fit in your price range. If you’re not sure how to figure out how much you can afford, read ahead for a few tips that will help you along.

Credit Check

One of the most important steps is to check your credit. Find out your score, and decide if there are any outstanding debts that could affect your qualification. If your score is in the low to fair range, the best solution is to pay on debts that are holding you back. You don’t want to start house hunting and find a house you love if you can’t make an offer because you didn’t get pre-approved. Taking the time to get your finances in order before you start looking at houses will help you avoid any problems if there are any marks on your record or any reasons why you don’t qualify.

Take a Look at Your Monthly Budget

Make a list of all the expenses you currently have. These include car payments, insurance, cell phones, groceries, and the list goes on and on. Take the time and consider all that you spend, and allow for unexpected expenses as well. Once you know your monthly expenses, you can look at your income and see how they match up. Having a good idea of your cash flow every month will help you to figure out what is in your price range and what types of houses exceed your income level.

Set Your Price Range

Next, create a budget for the type of home you will be purchasing. HUD Housing suggests you find a real estate broker. They can help determine the monthly cost of a home, homeowner’s insurance, property taxes and approximate closing costs. You should also have a thorough inspection and appraisal. Your broker can also check home sales in the neighborhood for comparison. Once you figure out the expenses of homes in certain neighborhoods, you will know where to look. By consulting with a real estate broker, you won’t waste your time looking at homes you can’t afford.

Other Expenses

In most cases, you should put earnest money down when making an offer on the home. This is money to show the owner that you have serious interest. If you do not qualify, your money will be refunded. Additionally, another big cost that you may not have considered is your down payment. New home builders who specialize in home financing suggest you save 20 percent of the cost of the home to ensure you have enough for your down payment. If the down payment is a lower percentage, this allows you extra money for other things.

Future Expenses

Future expenses should be taken into consideration, even if they are purchases or investments that will be made years from now. Write down all of the future expenses you can think of and consider whether you will still be able to pay for them, or if you will have to put them off for a few more years. These include college funding for your children, travel plans, or the need for a new vehicle. Think about your current career. Consider the type of company you work for and determine if this is a market that will maintain stability. While you can’t predict the future, it is a good idea to think about future expenses to make sure you will have enough money for your future hopes, dreams, wants, and needs. Spend a little time and decide what your future holds.

Buying a home can be a great experience but can also quickly become a stressful one. Allow plenty of time to organize your budget, and create a strategy with your broker. Be open to suggestions they  may have and rely on their expertise to help you when determining your budget. Buying a house is a big deal, and a huge financial commitment. However, this commitment signifies that you are progressing and ready to take the next step in your life. So don’t let the stress get to you, and enjoy the process of finding a new home for the next chapter of your life.

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Category: Housing

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