Buying a Home That Won’t Bust Your Budget

When you are actively on the hunt for your dream home, it can be easy to feel overwhelmed by all of the decisions needing to be made: Do you want a new construction or a preexisting home? Move-in ready or a fixer-upper? Do you find yourself longing to live on the country-side or dive into city life? Whatever your decisions are, it’s imperative to understand the importance of purchasing a home. Buying a home is a big commitment, and you want it to fit your lifestyle for many years to come! 

In today’s market, we all know the importance of budgeting out how much home you can actually afford. Yes, we all get a range on how much the bank is willing to loan us, but that can be on the more expensive side of your budget. Luckily for you, we are here to explain how you budget your money to make the home buying experience easy-going!

1. Add up your income. 
   
   You can’t make a budget without knowing how much you can spend. So, now is the time to add every source of income you receive each month! For a household with two separate income sources, be sure to add them together to make the average household monthly pay. 

2. List all of your expenses.
   
   To budget out how much house you can actually afford, you need to counter all of the extra expenses taken out each month. So, this includes rent, savings, health, utilities, insurance, etc.. Remember, everyone’s budget will be different based on their expenses, debt, and monthly income. 

3. Make your calculations.
   
   When you’re creating your budget, be sure to limit your housing payment to roughly 25% of your monthly take-home-pay. Otherwise, you become house poor, and no one wants that! Limiting yourself to 25% includes principal, interest, property taxes, homeowner’s insurance, etc.. If you’re looking to maximize your savings, try to shoot for a 15-year fixed-rate mortgage.

4. Give your budget room to grow. 
   
   Naturally, life will have its ups and downs, and there’s no escape when you purchase a new home. You never really know what to expect because life can throw curveballs sometimes. However, you can prepare for the unexpected by allowing your budget to grow. Allow yourself to reevaluate your budget as life happens. I mean, what if a couple plans to have children in the near future? What if a pipe bursts during a winter storm? What if your tire pops and it needs to be replaced? These are all common items, but they need to be taken into consideration when budgeting for a new home. 

5. Make adjustments.
   
   As time goes on, you will need to reevaluate your budget and make adjustments as new experiences happen within your life. Whether it be to welcome in a newborn or budget in the vacation you have always dreamed of, it always needs to be budgeted out! 

 Now you know the secret in purchasing the right home for you, how do you stay within budget? There are many realtors assisting buyers that push them to reach the higher end of their budget, which can leave you, the buyer, decently broke. So, how do you stay away from pushy realtors? How can you stay within your budget while searching for the next home? In today’s market, how is it possible to avoid getting wrapped up in a bidding war? For most of us, a house is the most expensive asset we will ever own. We should be happy to shop on a comfortable budget, we often shift our homes into status symbols, which sways people to purchase a home on the higher-end of their budget. 

In the seller’s market we are currently in, it can be easy to get wrapped up in purchasing a home on the pricier side of the market. However, we are here to give you some advice on how to stay in a price-range more suitable for you and your family! 

• Plan on a 20% down payment. 
  
  Most first-time home buyers come racing into purchasing a home, and they often don’t understand the benefits of paying a 20+% down payment on their newly purchased home. 

Paying next to nothing could cause you to over-borrow and overspend on housing. 

• Know the upper limit. 
  
  Previously stated, it’s not smart to shop on the upper side of your loan limit, but it’s good to know and understand. When you’re pre approved for a mortgage, the bank is determining how much they’re willing to risk lending to you. Don’t take their number as an official endorsement to spend on a house. If a bank’s algorithm authorizes you to lend you a certain amount, this reflects their risk tolerance, not your budget. 

• Avoid a bidding war. 

Remember, there is only one person that wins when bidding wars happen, and it’s the seller. If you happen to get caught participating in a bidding frenzy, it’s likely you’ll spend more than originally intended. When you make an offer on a house, decide how much you are willing to pay if the seller counters, but try to resist the urge to exceed the limit. In other words, be willing to walk away from a home. 

All in all, there are many ways to stay smart when looking for a home. Since 2022 is right around the corner, we expect to see more people jump into the market. If you’re looking to dive into the market after the first of the year and looking for a trustworthy agent, give us a call! We can help with any of your purchasing needs as well as offer answers to any questions you may have. Happy New Year and happy house hunting!