There are a lot of things you need to know before buying a new home, but the first of the many steps is to figure out if you can afford it. If you can, how will you pull it off? Here are eight steps to take to ensure you’re confident and ready for a life-changing purchase.
- Determine what you can afford.
(Via The Knot)
According to the US Census Bureau, Americans tend to spend around 30 percent of their household income on housing costs. To determine that number for yourself, add up how much money your family makes each month, then multiply by 0.3 to get a rough idea of your cost.
- Determine the monthly expenses.
Monthly ownership costs will be slightly different from renting. Major costs to add up include:
- Real estate taxes
- Homeowners insurance
- Condo or homeowners association fee
- Maintenance and upkeep
(Expense Tip: One way to get an idea of a mortgage cost is try a mortgage calculator online.)
- Make a list of additional expenses.
(Via GruntWorks, Inc.)
Though you’ve got an idea of what you can afford, apply any additional expenses to specific properties you look at. Will the driveway need to be replaced? Does the kitchen need remodeling? The general rule of thumb is you should be paying less if there’s more to fix.
Take a look at this map to decide which home improvement projects are most common in your state, so you can get a better understanding of how much money you’ll need to put aside. And don’t forget savings for a rainy day – that is, funds you can use to cover damage like flooding or fallen trees on your property.
- Plan for increased property taxes.
Speaking of remodeling, certain improvements, such as adding another bathroom, can increase the value of your house. That means it can also increase the taxes you owe. Other factors that can influence your property taxes include:
- Remodeling a kitchen
- Adding living space to the garage
- Land improvement, such as adding a garden
- Adding a deck
- Surrounding community improvements, such as a new golf course
Before jumping into a big home improvement project, make sure you have an understanding of how your taxes will change.
- Figure out which expenses you will eliminate.
(Via ABC News)
The average American spends the following on these expenses each year:
- Food away from home – $2,787
- Clothing – $1,786
- Entertainment – $2,728
Look for non-essential costs in your budget that you can reduce. Remember, the right home could make it easier to eat in, store clothes for longer, or entertain the family.
- Check in every day.
The best way to get totally comfortable with your budget (and your savings) is to add a little structure to your life. Explore mobile apps that help you budget, and integrate checking it into your daily routine.
If you’re struggling to figure out the best budget for you, try the 50/20/30 method. It splits your expenses into three categories – fixed expenses (like mortgage, utilities and car payments), financial goals (the part of your income that you’re saving), and flexible expenses (the day-to-day costs like groceries, entertainment, travel, etc.).
- Build credit.
Many websites, including many banks, will allow you to review your current credit report online. A good credit score is considered 700 or above, according to credit.com. To maximize your chances of receiving a home loan, consider these things to improve your credit score:
- Pay bills on time
- Keep your debt low, not maxed out
- Don’t have too many credit accounts
Hopefully these steps will help prepare for life in your new home. Next up: actually moving! Get great tips by visiting our Moving Tips Pinterest board.