How to Avoid Getting House Broke

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The price of a house is perhaps one of the most crucial factors in the home buying process, though it can be so easy to oversee its weight once the house hunt begins. $10,000 of cushion can become a $30,000 compromise in a small matter of time.

You need to evaluate your budget and establish price points before you even enter your dream home. Do this to confine your interest to homes that are in an affordable range so that it is much more difficult to buy impulsively or overspend. Settling on that perfect price is always easier said than done. So how do you determine how much house you can really afford to buy? You need to establish rigid price points to start off to avoid the urge to impulse buy.

What To Avoid Relying On:

Do not rely on a financial institution, lender or real estate agent to set the amount that you should spend on a home. No matter how many calculations they run on how your income and assets stack up against your debt and liability, it is impossible for them to fully understand each unique financial situation as if they were living in your shoes. You can use prequalification to estimate what size of a loan you will be able to obtain, however, just because you find out that you are qualified for a $200,000 loan does not mean you should buy a $200,000 house necessarily.

Do not rely on emotions as a basis for your logic. For home buyers who purchase on impulse or just because they “fell in love” with their dream house – we all know that that feeling is often fleeting. Purchasing a home based on real calculations will leave you more confident in your choice and without second-guessing and doubt.When you see actual calculations you will feel better about making a sound decision that you will be living with for a while down the road.

Do not rely on how much you can afford in only minimum monthly payments, so long as nothing goes wrong. First of all when it comes to paying off something as large as a mortgage loan, a car or even a credit card, solely making minimum payments is always less than ideal. If you make the effort to pay even a little bit more than the minimum monthly payment amount, you will decrease the balance quicker, which significantly decreases the amount you will pay in interest on your mortgage loan. What this means is that if you make bigger payments, you can save yourself upwards of thousands of dollars in interest charges. Secondly, leaving little or no allowance at all for unexpected home maintenance and repairs can be a costly blunder.

What You Should Rely On Instead:

Look at how much you can easily afford to spend. You should make a few calculations of your own, aside from those made by financial institutions, lenders or real estate agents, because you know yourself best. It is recommended that you multiply your annual household salary by 2.5 for a general estimate of how much you might be able to afford. Now keep that figure in mind and then set a monthly budget and begin practising making the mortgage payments, with the property taxes and insurance added, for at least three months. You need to make sure that you will be able to carry that extra expense and manage the payments. This is how you will determine how much you can comfortably spend on a new home, leaving just enough wiggle room for any unexpected costs that may come up once you move in. It is a good idea to maintain a separate emergency reserve of funds with three to six months of living expenses as a precaution.

Look at your future and how this purchase will affect your financial stability. It concerns more than just what you can afford today. You need to also take into account your future plans, like a wedding or college tuition, to assess how those financial commitments may skew your ability to pay your mortgage loan. These events don’t necessarily dictate that you must buy a less expensive home because they can be offset by a well prepared emergency fund. The key is to be prepared and have a calculated plan that you are comfortable with.