Buying a new home is an exciting yet stressful ordeal. While owning a home holds sentimental value, you must remember that it is a big financial decision. Buying a new home requires you to pool your resources and account for all expenses that you may incur. You may fall in love with a house only to realise that you cannot afford it. You may be able to gather money for the down payment or even dip into your future savings for the first few months, but these rash decisions will take a toll on you in the long run.
It is important to keep a check on your emotions and make practical choices. Real estate is one of the most valuable assets out there. However, investing in the wrong property can lead to a bad investment and ruin your plans. It is important to create the perfect budget to ensure that your dream house doesn’t end up giving you nightmares.
To ensure that your new home leaves you satisfied and not in debt, we’ve created a list of factors you need to consider before you start planning your budget. Read on to find out and create the perfect budget for your dream home.
1. Calculate Your Income
First and foremost, determine exactly how much your income is. While this may be relatively easier for people with corporate jobs, business owners may need to spend some time with their accountant to figure out their yearly income. People with jobs should take their bonuses, overtimes and commissions into account to get an accurate projection. Divide your yearly projections into a monthly gross income for easier budgeting.
2. Determine Your Current Expenses
The next step is to figure out the amount of money you spend on an average. Assess your housing expenses or fixed monthly payments like utility bills, phone bills, house payments and mortgages. Gather your non-housing expenses such as pending student and home loans, credit card payments, car payments, taxes, rent, and so on.
Subtract your monthly expenses from gross salary to find out how much money you have to establish the budget of your new home. Always analyse non-housing costs separately to figure out much money is required on housing costs. The maximum expenditure amount should ideally be 45% of your gross monthly income.
3. Analysing Buying Costs
Once you’ve figured out how much money you have at your disposal, you might think that it’s time to go house shopping. However, what you fail to realise several other costs that come with buying a house. You need to include important aspects like property taxes, registration fees, realtor fees and so on.
Furthermore, you may also need to factor in additional expenses like paying for a house appraisal, home inspection and utility costs of the area. The locality’s providers may have different rate cards than your old neighbourhood. Another important aspect that several first-time buyers forget to consider is getting their house insured. They don’t realise until it’s too late or they have already moved in.
4. Always Pay in Cash
Once you have set your budget and ready to seal the deal on your dream home, it’s time for you to make the transaction. Ask the seller if he will accept a cash payment. Paying in cash ensures that you only spend what you have saved and do not go over budget on your credit card bills. If the seller denies, pay for other aspects like utility bills and house repairs by cash. It helps keep a check on your expenses and avoids overspending issues.
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