Avoid Costly Mistakes When Buying A House
With so many people having serious financial trouble right now because they can’t afford to stay in their homes, it’s important to review a few pointers that will help you avoid having similar problems.
Spending Too Much: The main mistake that homebuyers make is that they spend as much as they can for a home instead of as much as they should. Just because a lender will approve you for a $350,000 mortgage doesn’t mean it’s a good idea for you to take on the burden of higher monthly mortgage payments than you can afford.
A rule of thumb is that your mortgage payment should be no more than 29% of your gross monthly income, and your overall debt should be no more than 36% of your income. If you look closely at most of the people struggling to make their house payments right now, they very likely have debt ratios that are much higher than these limits. The key is that you can’t let your mortgage payment stretch your budget so tightly that one unexpected cost could derail you financially.
Have An Emergency Fund: If you don’t have 3-6 months worth of living expenses set aside in a safe, accessible place, you may not be ready to buy a home yet. An emergency fund will provide a cushion if an unforeseen expense comes up. Your emergency fund should not be invested in risky assets. Interest bearing savings accounts or money market accounts have very low interest rates right now, but an emergency fund is designed for dollars that will be there when you need them.
Budget Relentlessly: It’s impossible to know how much house you can afford if you don’t have a firm understanding of your other costs and obligations. There is plenty of software out there designed to help organize your budget, or a simple excel spreadsheet could be all you need. Over a 6 month period, track every dollar you earn and every dollar you spend. Soon you’ll know what you spend in the average month not just on car and credit card payments, but on entertainment, dining out, and other costs that most people usually underestimate.
One cost that usually is not accounted for in a budget is home repairs. Experts will tell you that home maintenance will cost about 1% of the value of your house each year. So for a $300,000 house, you should plan to spend about $3000 a year maintaining that house. This is one of those costs that fly under the radar for many people, but tracking every expense will help you to find these costs and others that are not generally considered in personal budgeting.
If you enjoyed this post, make sure you subscribe to my RSS feed!
Tags: budget, homebuyers, mortgage
Related Posts
