Tips for First Time Home Buyers: What Kind of House You Can Afford
Some of the most important decisions a person has to make in their life are the ones that relate to the home for them and their family. The fact that a loan has to be repaid over many years means that you need to be very realistic when it comes to your ability to pay the installments regularly and to still have enough money for everyday use.
If you don’t do the calculation well, you might be stuck with either a home that is too expensive or too small, which is difficult to sell. Also, there are other factors, such as repaying student loans or setting up an emergency fund that also significantly limits your options. So, how can we tell what is realistic when it comes to buying a home?
Know the difference
The amount you can afford is rarely the same as the amount you can borrow. The latter amount is usually higher and many people get carried away when they start dreaming of their new home and they fail to notice the effect such high installments would have on every aspect of their life.
Instead, you should keep your feet on the ground and know exactly how much you can afford, regardless of what a loan officer at a bank says. No-one knows your financial situation better than you.
Do your research
Luckily, this is now much easier than ever before since you can actually do this without having to leave home at all. The modern technology allows you to compare mortgage prices at any time of the day and you can use one of the calculators on the website of Australian Lending Centre to get an instant answer to any money-related question you may have.
The terms and conditions will vary significantly and you need to be patient and persistent in your pursuit for the perfect mortgage for you. Mind you, depending on your income and current debt payments, you may have to settle for a smaller loan unless you’re ready to pay a much higher mortgage rate and you also might find it difficult to find a lender that would be happy to help you.
Consider your feelings
Though it may sound strange, you do need to think well about how comfortable you are with the payment. Again, the number shown by a calculator might get you a dream home, but if you don’t feel you’ll be able to see the whole thing through, you might want to pass such an offer.
If you’re renting a place now, consider how much you’re paying and think how you feel about it. If you’re struggling each month to make the ends meet, look for a payment that is not as high as your current rent. On the other hand, if you’re doing fine, you might even consider a higher mortgage payment.
Some people say that it’s unwise to spend more than 30 percent of your monthly income on the housing payment, but that leaves a lot of questions unanswered. For example, do you take into account the utilities, taxes and insurance, for instance? In order to get a better picture, you should take every expense, including maintenance and repairs, into account as well. It is playing safe, but you won’t feel so much pressure.
The mortgage payment is not the only home-related expense. There are quite a few other costs you need to be aware of when planning your budget, such as property taxes, insurance, utilities, maintenance and repairs. You can’t avoid any of them, but if you fail to take them into account, you might turn your life into a living hell.
People moving to a bigger house sometimes forget that they’ll also have to pay higher utility bills and that maintaining an older house is likely to cost much more than living in a more recent, but smaller unit. Also, there’s no more a landlord to deal with every problem you come across, but you need to find someone to fix it and you have to pay for it from your own pocket.
What are your plans?
You need to seriously think about your long-term goals. How many people will be bringing income and how many people will be living with you? Is the real estate in question something you think you’ll be able to sell at some point if that’s your plan or if you have no other option? Is it important to you to own a house?
There are many more questions that need to be answered, but the most important thing is to be realistic and carefully calculate all prospective expenses and compare them with your expected income. If you like the numbers you see, you’re probably going to become a homeowner soon.
Raul Harman’s is a business consultant from Sydney, Australia. He has masters degree in finance and banking and is currently doing financial consulting for various tech companies. Lately, Raul has been mostly concentrated on start-ups and helping them seek the resources to build their company. Raul is a passionate runner and adventure seeker. Every spare moment he loves to spend in nature. Currently writer for Technivorz, and BizzMarkBlog