Knowing How Much You Can Spend on a House
- Apr. 16, 2015
- Shantell Russell
- Personal Finance
If you have decided to purchase a home, you may wonder how to establish your budget. There are a number of factors to think about when you buy real estate. Know what to consider and techniques you can adopt to help ensure affordability. Use our Home Affordability Calculator to find out how much you can afford.
Before the Budget
The interest rate affixed to a home loan may impact what you will be able to afford. CNN Money recommended improving your credit score to qualify for a lower interest rate. Know how good your credit is and correct any blemishes that may be present.
Make sure you pay your bills on time and try paying off as much of your current debt as possible. This will help improve your credit before you apply for a home loan. According to Bankrate, there is some debt that is considered "good" for your credit report. Any debt that you have had and paid off as agreed works in your favor. Do not try to remove this history from your report.
It is also important to know that if you purchase a home, you should anticipate staying in that location for a while. The cost associated with buying and selling a home may not be worth owning real estate if done too quickly, and you may lose money. MoneyNing noted that you may want to live in a home for at least five years otherwise renting may be a smarter option.
Saving for a Down Payment
One of the first things you should do when figuring out a budget for a home purchase is knowing how much you can afford for a down payment. This is one of the key factors to think about when determining a budget for a new home, according to Zillow. It is a key factor and ultimately impacts the mortgage amount that you will qualify for.
There are a number of ways to save money for a substantial down payment and increase the amount of house that you can afford. Forbes suggested turning your hobbies and passions into income. If you are a crafty person, consider selling your creations on websites like Etsy. If you are a dog lover, offer to walk or watch pets when people are out of town. Your talents can easily translate into money that you can put toward a down payment.
U.S. News & World Report recommended selling items at a garage sale or online. You may sell an item for more money than you expected, and your profits can help your down payment savings grow.
In addition, shopping around for new rates on your regular expenses may leave you with more money at the end of the month that you can contribute toward a down payment. Consider switching your cellphone plan, car insurance or Internet provider. You may also be interested in disconnecting your cable and buy a more affordable option, like Netflix or Hulu Plus.
Determining How Much You Can Afford
Fox Business noted that figuring out a budget for a home is not always clear and simple. Monthly payments for a home that costs $300,000 can be different for everyone. Interest rates, taxes on property, your down payment and credit score all influence your monthly payments.
Mortgage payments generally should not exceed 28 percent of your monthly salary, and the total value of the home should be no more than two-and-a-half times as much as your annual income. Be honest with how much you can afford to pay each month and set aside money for emergencies.
There are tools available on the Internet that can help you determine how much you can spend on a home. They typically take into account your annual income, monthly debts and how much money you can put toward a down payment on a new home.
Accommodating Your Budget
Purchasing a home that has been repossessed by the bank may be an option that can save you money. However, there are certain risks involved in considering a property that has been foreclosed, according to FrontDoor.
First, there are different types of foreclosures. It is important to know the type of property you are looking at to determine the disadvantages as well as the advantages. In some instances, you may not be able to negotiate the price, and bank-owned homes may only be sold as-is. In an instance such as this, it is especially important that you hire an inspection company to evaluate the condition of the home so that you know if there are any issues that may require hefty expenses.
Trulia noted that buying a foreclosure may allow you to purchase a house at a lower price than what the market would otherwise indicate. In addition, if you are looking at a house that is in pre-foreclosure, the individual selling the home is hoping to sell quickly. This puts you at an advantage for negotiation.