One of the most important processes that you really want to think about when you're taking on any endeavor, whether it be starting a new business or looking into a vacation, is figuring out your budget.
This is no different when you're deciding to move and you want to relocate to a new place. You really need to sit down and look at the numbers first so that you know how much you can afford in a monthly payment. From there, you can also factor in all of the utilities you might need to pay and determine the ideal purchase price for a house. As with many projects, it is easiest to work backwards from a goal to figure out your numbers.
When I work on a new home budget, the first thing that I consider is the initial required down payment. If you're not going to have enough money for a 20% down payment on your dream home, there are other options out there, but you might want to figure out whether or not those options are going to be available to you. VA Loans, FHA Loans and gifts are some of these options, but there are rules and guidelines outlining who can qualify for them. So you’ll want to consult with your lender here.
Once you understand all of your options, you can then determine what you can comfortably afford to pay as your deposit. This is when it would be smart to go back and figure out what it is that you actually have in your liquid savings account to be able to put down on a house, up front. If your only option is a conventional loan that requires 20% to be paid up front and you have $100,000 in savings, then you should make sure to stick to a house budget of $500,000 or less.
From there, you should look at your monthly expenses and what you'll be able to afford in the way of a monthly mortgage or in the way of a rent payment. Write down every expense that you’ve incurred for the last three months, minimum. If you can do more, that is better! Start to gain a clear picture of every single expense in your household. Do you see any places where you can cut back spending so you can put more toward a house payment? Or is it important for you to keep your house payment at its current rate?
If the purchase of a new home is going to put you in a situation where you’ll be exceeding that amount every single month and you're going to be struggling to live from month to month or from paycheck to paycheck, that's not a very comfortable way to live. I know there are a lot of people who have to do that right now, but if you can rework your budget number up front, you can save yourself a lot of time and hassle by figuring out what it is that you can actually afford every month to live comfortably.
I use several different mortgage calculators to figure this part out. You can input potential house prices to figure out what your estimated monthly payment would be. If it exceeds your needed budget, bring that number down until you hit a mortgage payment you’re comfortable with.
When your monthly mortgage payment and your down payment potential numbers are brought together, that is when we have a solid picture of your home buying potential. And then it’s important to immediately remove anything higher than this number from your search. Don’t even tempt yourself!
If you need help putting together a budget and looking at the up front numbers, please contact me. I’ve gone through this process 12 different times throughout our various moves, and now I’m helping my clients to do this same work every day. My email is rachel@greatplacesproperties.com and I really look forward to working with you to find a dream home you can afford!
Comments