Purchasing a new home is a major step, and you want to make sure it is the right step at the right time. That means you need to be able to afford it. You have to know what you are able to pay for the home. That’s going to involve a look at your finances and a budgeting process, but it will be worth it if you can own your own home and not go into massive debt over it.
Examine Your Income
You should start the process by looking at all your sources of income.
Don’t just figure in what you make from your job. You should also factor in any investments you have, saving accounts, secondary income and regular sources of revenue. You can also factor in upcoming cash flow, such as retirement, inheritance and others. You can even factor in salary increases, if you can be sure about them. If you will be moving out of an apartment, you may be able to factor in the deposit you will receive.
Be sure to differentiate between regular sources of money and one-time payments. You want to make certain you can afford the house over the long run.
Consider Your Expenses
Next, you need to look at your regular costs. You’re trying to create a budget to see if the house you want can fit into what you can actually afford, and that means looking at every aspect of your financial affairs. So include credit card payments, student loans, family support payments, groceries, transport costs and other expenses you pay every month.
Be sure to factor in annual expenses, such as membership fees, school fees and taxes. Also include expenses that you know are coming up but that you will only pay for one time, such as parties, vacations and similar costs.
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Look into the Home’s Cost
Now it’s time to look at the cost of the home. You can’t just consider the annual monthly premium. There are more costs to it than that. You have the down payment, the closing costs on your old home, the expense of moving, the cost of your new utilities and other expenses that come with moving out of one place and moving into another. Add up all these costs and mark down which ones you will have to pay up front and which ones you will be paying for on a monthly basis.
Make a Budget
Once you have done that, take your expenses and subtract them from your income. What is left (and hopefully, there is some left) is what you have budgeted for your new home. Compare that figure with the figure you came up with for the cost of the new home. If you can’t afford it on your current budget, then it is time to make some changes.
Look for ways you can cut down on your current expenses. You can drop some memberships, reduce credit card payments, pay off expenses before you make the move to a new home and more. You can also find ways to increase your current income. This can be a bit harder, but it may involve changing jobs, adding a part-time job or doing freelance work when possible.
If you have finished budgeting and adjusting and you still don’t have enough for the home, then you need to consider another home or think about waiting on buying a home until you are more financially secure.
