Establish Your Home Buying Budget
There is nothing more important throughout the home buying process than to establish an accurate budget for you. Nothing good can come from only hoping you can afford your chosen home and finding out that you cannot and no bank will approve your mortgage requirements to take over ownership of the home. Even if you are simply looking at homes and not ready to buy one, learning how to create and establish your budget is important so you do not fall in love with homes that are too far out of your affordable range.
Taking the time to determine if house ownership is right for you is an important step of the house buying process and if you have already made this decision than we can begin creating your home buying budget. First you will want to calculate your total net worth. You can do this by subtracting your total liabilities from your assets. This is amount of cash flow you have coming in each month without you having to go to work for a pay check. Once you have this number you need to go through and add up your total monthly expenses as well as your monthly debt payments, if any. The more debt you have the harder it can be to stay ahead of your mortgage payments.
Each of these calculations are important to discuss with your lender so you can figure out what size of down payment you can afford and if you can later afford your monthly mortgage payments and all the other expenses that come with owning a house. This is the aspect of home owning that many people overlook. Once you own a home you will have to furnish it, maintain it and of course pay higher utility bills to keep everything running smoothly and let’s not forget your property taxes.
Once you have all this information regarding your current financial situation, your lender can help you realistically figure out how much you can afford. The first major rule is that your monthly housing costs should not be more than 32% of your gross household earnings each month. If this is the case the homes you are looking for are too expensive for your current budget. The second affordability rule is that your total debt payments in a month should not be more than 40% of your gross household monthly income. This includes your mortgage payments and other loans such as car loans and credit card debt.
You will find if you choose to go online that many banking institutions offer calculators and charts right on their sites to help you establish these numbers and see in a chart form the homes you can afford and what your budget really is if you are honest with your numbers. This is the smartest way to go about establishing your budget and your chosen lender should be able to help you achieve this home buying budget if you cannot. Be smart about buying your first home and make sure you are in the financial situation to afford to do so.
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