Determining a Realistic Budget for Your Home
Finding a dream home doesn’t have to come at unrealistic prices. If you do your research, understand your expenses, and compare homes and prices, you can find a great home for a great price.
This article will help you understand how to determine a realistic budget for your home and help you understand your lifestyle after moving. If you’re looking for more advice, make sure you read our ultimate guide to buying a home.
Be honest and realistic about what you can afford
It’s important to start this off with a big disclaimer in case you get to the end and realize you’ve missed a critical step in the process: while thinking about your budget, you need to be honest and realistic.
If you aren’t, you’ll make decisions that don’t match your financial situation, which will leading to stress down the road. By being honest, you ensure you find a home that is in your realistic price range, and avoid the situation where you’re spending more money on a home than you can afford; you won’t enjoy your new home under a pile of debt!
Get familiar with your monthly expenses
One of the first things you want to do is understand how much money you regularly spend each month. To do this, you’ll want to create a monthly budget so you can track and manage your expenses. This is step one to understanding how much you are able to spend on home ownership, and help you find your ideal home.
Next, you’ll want to take into account what you consistently spend throughout the year. Consider how much your electricity and heating bills are, how much you spend on food and beverages, entertainment (movies, restaurants and fast food, hobbies, etc.), and necessities like clothing and healthcare products. Create a list of all expenses so you can get a more well-rounded number of how much you’re spending each month.
Consider the cost of being a new homeowner
Next, you’ll want to understand how you plan to afford owning a home. You’ll want to think about your income and savings, as well as how much you are able to increase spending above your current expenses.
There are additional costs to owning a home, including property taxes, hydro and electricity cosets, and home repairs, which are all the responsibility of the new homeowner.
To know how much you’ll really spend on your home, you’ll have to have an idea of the type of home you want. Here are a few things to consider:
Your lifestyle - This is important in choosing a home, and will determine the layout of the home you want to buy, as well as how much you’re willing to spend.
Importance of size - How big do you need your home to be? Do you need many bedrooms? Are you comfortable sacrificing size for location? All of these questions are important to consider before you start attending open houses.
A yard - This comes with a range of added expenses, including the base cost of a mower, a rake, and other tools, plus future maintenance costs such as aerating and fertilizing.
Pools and hot tubs - These can be a great feature, but they also come with treatment costs, heating, and upkeep fees.
Distance to city amenities - Are you willing to pay a little more for a prime location, or do you prefer being farther from the action of downtown? If you want to be walking distance to city hotspots, you’re going to have to pay for it.
Distance from your current home - Moving expenses increase exponentially the farther you’re moving. Will you need to rent a moving truck? How many trips will it require? Do you have too many heavy items that will require hiring movers? All of these added costs can add up quite quickly.
If you’re planning on buying a home, it’s important to consider all of the additional costs that you don’t already have. This way, you can paint a good picture of how much home ownership will really cost you.
What costs stop with homeownership?
Say goodbye to the cost of rent! Although it’s an important figure to think about when buying a home, you want to know what expenses you will lose now that you become a homeowner to help determine your budget.
Rental insurance, for example, will obviously be unnecessary. If you are moving closer to work, to amenities, or conveniences, you may be able to save on gas as well. Think about changing expenses and costs in order to have a good idea of how much money is coming in and out of your bank each month.
Remember that interest rates fluctuate
Despite all of your preparations, it’s essential to remember that interest rates fluctuate regularly. While the home you want may fit within your budget, you should leave some space to account for changes to your costs. If interest rates rise or you have increased costs, you’ll need to be able to handle this increase. It’s better to assume these added costs will come up than not prepare for them and lose your dream home.
Making the final decision: understand what you can afford
Ultimately, all of this helps you understand how much you can afford to spend as a new homeowner. From here, you can determine how much you are able to spend on a mortgage, which will help you determine which home you can afford when you start your search.
Combine your current monthly expenses with your expected costs of homeownership and subtract the costs that stop once you buy a home, and you’ll have an idea of how much it will cost you. Once you have an idea of your budget, you’ll have a better idea of what places you look at are a place you can call home.
Once you have a clear picture of your income and expenses, what costs will be added, and home prices for the current market, you’ll be able to understand your budget. With a clear budget for your home in mind, you can now start home shopping! That’s when it’s time to find a real estate agent to help you. If you’re ready to start looking at houses, check out our guide to choosing a home for your future.