Want to buy a house? Here’s how to figure out what you can afford
Buying a house for the first time is an exciting endeavor, but it’s also a costly one. For most people, their home will be both their biggest and most long-term expense, which means that it’s important to make the right decision when you buy. Luckily, in this day and age, it’s easy to get information and put it to work for you. By taking a few minutes to examine your situation, you can find the perfect house without breaking your bank. Here are a few things to consider!
Don’t Stretch Your Salary
When you’re a first-time home buyer, it’s not the right time to push for luxuries and end up with more than you can afford. Unexpected costs can pop up at any time with a house, and you’ll need to make sure you have money to afford to fix anything that could go wrong. To ensure that you’ll have a safety net, it’s best to be honest about your salary and conservative in your estimates.
Ideally, your purchase price should be between three and four times your annual salary. This will keep your mortgage payments manageable and provide some protection in a worst-case scenario. Best case? You’ll build a nice nest egg for some home additions, a great vacation, or a new car!
Budget For Repairs
If you’re new to the world of home ownership, one change you’ll have to get used to is paying for your own repairs. When you’re renting your home, if something such as your dishwasher or water heater breaks, all you do is call your landlord and have the maintenance crew fix it. When you’re the owner, however, you’re responsible for everything, which often means paying a pro.
Those costs add up, and you can expect to spend about one percent of your home’s purchase price per year on maintenance. On a $300,000 house, that’s $3,000 a year, or $250 a month. If you can’t comfortably afford the mortgage payments plus that extra expense, it’s best to look elsewhere.
Don’t Forget Taxes!
No matter how you try, you can’t escape Uncle Sam on a purchase. Being a homeowner means paying property taxes, which are due every April. You’ll pay a percentage on the value of your home, and that’s usually between 0.5 and 2 percent, depending on your state and local governments. It comes out as one lump sum, but it’s best to look at it like your repair budget: putting away a little at a time will help you absorb the blow when it arrives.
It’s tempting to go for the bigger house by stretching your budget, but it’s often better to show patience and keep a level head. There’s no reason to rush into anything when it comes to purchasing a house. It’s far better to have money for savings and fun than it is to sink all your cash into a house and have it tie you down!