You’ve rented your current residence for several years. It’s time to think about a more permanent situation. Purchasing a home is a dream come true for many people. Decorate, arrange and alter the property to your liking. However, owning a property is different than renting it. There are many expenses that must be taken into account. Explore the tips behind a solid budget so that buying a new home has no major hiccups.
Know What You Can Afford
After applying for a home loan that’s based on your household income, the lender might come back with a large, loan amount. They say that you can afford this amount, but you know your finances better than them. Think of the lending amount as a maximum value. You may have student loans, credit-card bills and other debts that cut into your monthly income. Consider the amount that you’re paying for rent as a good place to start. If you can comfortably afford the rent, you may be able to stretch your finances a few hundred dollars to pay a monthly mortgage.
Understand Underlying Costs
Your rental costs were pretty straightforward with utilities paid on the side. Mortgages are completely different. The lender charges you the principal and interest. However, there are property taxes that must be paid as well, reports Discover. Another factor is maintenance costs. You’re now the landlord of your property so plumbing, roofing and landscaping are your costs to bear.
The HOA and Insurance Factors
Every lender requires insurance on any structure that you purchase. This coverage protects the lender from any financial loss if a disaster strikes. It also gives you a chance to repair or replace damaged items after an event.
HOA or homeowner’s association dues may also be part of the property purchase. Certain communities require these dues so that collective investments are covered, such as a gated and secured neighborhood. Pay the dues each month to an investment company that oversees the process.
Avoid Bidding Situations
You put in your best offer on a dream home, but there’s a bidding process occurring between you and another buyer. It’s tempting to up the bid so that the property can be yours. Keep in mind that you have a limit when it comes to debt-versus-income, reports Bank Rate. You cannot bid more than the loan amount that you’ve been approved for in the first place. Stop the bidding at the maximum amount that you can afford. Losing this house only means that another one will be available soon for your family.
Save up a large, down payment when you initially purchase the property. By paying down some of the expenses, your monthly payment will be much less than expected. Reducing any debt in your name is the best strategy so that you can pay off the house as soon as possible.