Buying a house has to be one of the biggest milestones in anyone’s life – even more so if that’s your first property. You’re finally wrapping things up with the tenants, getting your own piece of heaven, and investing in something that will only keep building equity as time goes by. There are a lot of good things to be said here.
Unfortunately, the financial risk involved in the whole affair is not one of them. How much exactly and how risky the process will turn out to be will largely depend on your budgeting skills.
Let us take a look then at a couple of tips for creating a realistic budget and putting these worries to rest.
Downsize prior to buying
Buying should not be rushed through. If you want to be sure you are properly funded when the ball finally starts rolling, you need to spend every dollar you can while you are waiting. Start by tackling the biggest item in your monthly budget – the rent. At the very least, your rent should never ask for more than 30% of your gross income.
Ideally, it would help if you downsized for as much as possible or moved to a more affordable city area. If you are living with a partner you will be able to improve finances with meal prepping, using public transport, creating concise shopping lists, and tracking your expenses.
Look for the properties you can handle
Now that we’ve seen some methods for putting a couple of dollars aside, we should point out that even the smartest budgeting won’t save you from financial disaster if you are shooting beyond your reach. So, keep in mind that your mortgage should never go past 28% of your gross income.
The same things roughly apply to the down payments. Traditionally, they range anywhere between 3% and 20% of the purchase price of the home, with the option to pay private mortgage insurance until you build 20% equity in your home. If your intended property doesn’t meet these criteria, feel free to skip it.
Shop around for the best offers
Now, the numbers we have mentioned above don’t have to be set in stone. As a matter of fact, if you spend enough time shopping for the best loan deals, you can drastically tick the odds in your favour and make more room in your budget for the actual property.
So, be sure to do this research before you make any final decision, and don’t be afraid to ask for help while you’re at it. Let’s say you are moving to NSW. Looking for a professional mortgage advisor in Newcastle or some other local property hotbed will make the search for the loans you can support with long-term income an easier job.
Take into account the closing costs
The price of the property, mortgage, and down payment make a large bulk of financial concerns you will have throughout the house-buying process, but they are not the only ones. Closing costs, for instance, will require a very hefty upfront payment. Typically, they tend to range between 2% and 5% of the total purchase price.
These expenses are not negligible and if they are not accounted for in due time, they can eat a large chunk of your mortgage and purchase budget. So, be sure to address these issues and start saving closing costs as soon as possible. A separate budget won’t be a bad idea, either.
Think of the costs that await you after the purchase
Some of them might be completely unfamiliar, and some may throw a wrench in your ongoing expenses. Be that as it may, your hunt for a new house should never end up with your accounts being dead dry.
Even when you get the keys, you will need to deal with the moving costs, new furniture, and appliances, maintenance tasks like gutter cleaning, homeowner’s insurance, and all sorts of other things that may damage financial capabilities. Well-thought-out strategies for long-term financial success and pacing out these expanses to give your budget some breathing room will prove to be of great help.
Improve your loaning capabilities
By that, we mean primarily your credit score. This financial metric has a great impact on the amount of down payment and mortgage rates you will need to deal with as time goes by. If you find yourself in an unfavourable position and your budget simply doesn’t add up, you need to start building stronger financial foundations.
That doesn’t mean you should put your budgeting efforts to rest. On the contrary – seek the help of an advisor and see how you can improve the score, how that affects your finances, and when the figures will go up. If anything, these insights can only make your job easier.
Well, we hope these couple of tips will help you navigate the complex process of buying a new home if only a bit easier. So, take an honest look at your personal finances and take into account all the things we covered above.
You will get a much clearer idea about how much you can spend on the very property and how that will affect your financial capabilities in the foreseeable future. When you move this Herculean task off your shoulders, you will finally be able to start looking for a property that sits within your scope.
But that’s a topic for another occasion.
By Mike Johnston