It’s no surprise that overstating a home buying budget can discourage new buyers in the housing market.
In fact, it’s one of the main reasons why 40% of Americans believe that not getting their housing budget under control is one of the main reasons they don’t own a home.
The challenges – and they are not so easy to solve – are that buying a house is getting more and more expensive (and although this varies by market, it usually always does) and that income can vary. Yes, you may have a stable job right now, but the current economic situation has many Americans worried and that makes planning even more complicated.
Determine your homeownership budget
The good news is that home ownership is more feasible than many Americans think. According to home buying experts, the key is that it’s just a matter of determining an appropriate budget.
How does figuring out how much house you can afford and still getting what you want really work? TheStreet.com reached out to experts in real estate and financial management. Here’s what they had to say.
Get professional help. The first job is to talk to a trusted and knowledgeable mortgage expert.
“The first step is to speak with a lender to understand the financial implications of buying a home,” said DJ Olhausen, realtor at Realty ONE Group Pacific.
Identify the monthly mortgage payment that suits you. Your next step is to focus on a monthly home payment that matches your unique annual income level.
“Buyers should” net about three to four times what their [monthly] paying for the house is living quite comfortably,” said Suzi Daile, a realtor with more than 14 years of experience at Realty ONE Group, based in Southern California.
Be sure to factor in emergency savings. Having a rainy day fund with any mortgage budgeting strategy is not a luxury. It’s a necessity.
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“The rule of thumb is to have four to six months of money in reserve for unforeseen expenses,” Olhausen told TheStreet.
What is your schedule? Homebuyers will need to determine how long they wish to reside in the home.
“If you’re looking for a short-term stay and want to sell the house after you move out, be aware of agent fees and borrowing costs as they can ‘eat away’ your appreciation if you’re not not in the house long enough,” Olhausen said. “
Consider external costs. Many people overlook all the costs associated with home ownership, and that’s a mistake in budgeting.
“It’s not just the purchase price and mortgage payments, don’t forget to factor in taxes, HOA/Condo dues, insurance, lawn maintenance, pool maintenance , utilities and regular maintenance,” said Erin Sykes, chief economist at Nest Seekers International. “All of these costs should contribute to your monthly payment estimates and therefore your comfort level with a potential purchase.”
Know the key factors in determining home budget costs. The buyer’s annual income, mortgage rate, credit health and time spent in a home are all factors in a buying budget. “The same goes for the general economy, the future desirability of geography, travel and proximity to friends, family, restaurants,” Sykes told TheStreet.
To be realistic. Buyers need to look in the mirror and be honest with themselves and ask themselves, “Does your income support the purchase and your lifestyle?” »
“No one wants to be ‘housing poor’, unable to afford other activities, and in an emergency situation or in the worst case, find themselves in financial difficulty where they cannot afford the monthly payments to end up in foreclosure,” said broker Kimberly Jay, real estate broker at New York-based Compass.
Know exactly how much you can afford. As a general rule, your mortgage payment should not exceed 28-31% of your gross income for the month.
“Take into account any other fixed monthly debt payments to determine how much you can afford,” Jay told TheStreet. “Also be aware that 43% is generally the highest debt-to-equity ratio a borrower can have to secure a mortgage from a lender.”