Buying a home will be one of the biggest purchase you'll ever make. That is why you want to ensure you consider everything before you decide on the price of the home you are going to buy. Here are three tips that will help you pick out a home and stay within your budget.
Get A Mortgage Pre-Approval
The first step in purchasing a home should be to get a mortgage pre-approval. This process involves having a mortgage lender look at your income, debts, and current assets and decide on how much they are willing to lend you for a home. This will help determine how much you will pay each month for the mortgage.
One thing to keep in mind is that the pre-approval amount could potentially be more than what you are comfortable spending. Don't look at the amount as the price you should shoot for, but use it as a guide to know what your upper limits are.
If the amount is lower than you anticipated, keep in mind that the pre-approval amount is for the loan itself and not the price of the home. A large down payment will make the balance that you owe much smaller, which can make a home attainable to you.
Factor In Taxes, Insurance, and PMI
Your mortgage is not your only cost of home ownership. You must also factor in costs related to taxes, insurance, and private mortgage insurance (PMI). Your real estate agent can help you determine the taxes on the property, and an insurance agent can give you a quote for what you will be expected to pay annually for insurance.
PMI is typically something you only pay when you put less than 20% down on the home. Talk to your mortgage lender about how you can avoid paying PMI and save money each month on your housing costs.
When you combine all these costs with the mortgage, you should try to keep the costs below 28% of your income.
Consider Future Maintenance
It's hard to know exactly how much you will spend on maintenance for your home, but there are a couple rules to give you a rough estimate. One way is to put aside about 1% of the home's value towards maintenance every year, while another way estimates $1 each year per every square foot of the home.
For more tips on staying within budget when purchasing a home, speak with your real estate agent.