One of the best things you can do when you start budgeting, is set a financial goal.
This target will keep you motivated when you’re struggling to stop yourself from buying something that you don’t really need especially when you want to buy a home. What’s more, a good goal can also give you an idea of how much of your income you should be saving each month if you want to reach your ambitions by a certain time.
One of the most common budgeting goals that today’s consumers have, is based around the desire to buy a home. If you’re thinking that you might be ready to make that all-important down-payment, here are a few things that you’ll need to think about.
How much debt do you have already?
Most of us will have at least some debt before we go out and get a mortgage. This might be your car financing debt, the loan you got so that you could afford to go on holiday last year, or even your student loan. If you were careful, and compared your options before committing to a loan, you’ll hopefully have a low interest rate and limited fees to worry about. However, you’ll still need to think carefully about the amount of debt you have before committing to buying a house.
High-interest debt like credit card debt might be better consolidated into another type of loan, perhaps even a loan designed for poor credit. If you’ve got a range of loans to worry about, and you can’t consolidate them all, then you might want to wait until you’ve cut down on the amount of debt you’re dealing with before you apply for a mortgage.
Have you considered all the costs?
Most people are surprised to discover that there are more expenses involved in buying a house than they originally thought. You’ll need more than just enough money to pay your mortgage each month, and plenty of cash for a down payment or deposit. Aside from those two expenses, make sure that you’ve accounted for other fees too, such as:
- Legal costs
- Furniture for your new home
- Any fixes you need for your new house
- Moving costs (hiring a van)
You also may need to put extra cash aside to have your house checked for any issues before you buy it. This can stop you from making a bad investment – particularly when you’re buying your first property.
Will you still have emergency savings?
If you’re free from debts to worry about, and you still have plenty of cash for all the things that we’ve mentioned above, make sure you aren’t using all of your savings to buy your house. Ultimately, you’re still going to need a little cash leftover just in case you’ve forgotten to account for something.
When you move into a house, there can be a lot of unexpected costs that emerge seemingly out of nowhere. For instance, you might discover that you need to replace something in your bathroom that seemed fine on your first inspection.
Leaving yourself with absolutely no money also means that you won’t be prepared to handle the little disasters that can happen during your day-to-day life, such as your car breaking down, or your washing machine giving up the ghost.
If you wanted to avoid having to pay for some of these emergencies altogether, you could consider getting your systems and appliances protected with a warranty from somewhere like First American Home Warranty to give yourself peace of mind that, should something go wrong, the costs of getting a professional out to do any repairs will be covered by your warranty.
Can you afford the monthly payments?
If you can afford to put a deposit on your home, pay for all the legal fees, and even get the furniture you need and still have emergency savings left over – you’re in a good position. Now, you just need to make sure that you can afford all the monthly payments you’ll have to handle as a homeowner too. The best way to prepare for this is to sit down with your income and think about all the things that you’ll need to pay for when you own your house.
Remember, this will include things that you might not have needed to pay for before, including house insurance, television licenses, water and utility fees, broadband expenses and more. You’ll also need to think about how much money you’re going to spend on things like food and everyday essentials like washing up liquid too. Thinking about how much you’ll need to pay each month can be a good way to stop yourself from trying to buy a house that you can’t really afford.
Are you ready to make adjustments?
Finally, remember that even if you think you’ve covered everything when deciding that you’re ready to buy a home, there’s always a chance that you could have missed something crucial. Be prepared that you may need to come back and revisit your budget in the future.