Almost 90% of homebuyers in 2019 purchased a home with a mortgage.
You may have noticed that not everyone buys a home with cash. You have to save a lot and still may need a mortgage to help pay for the home.
That’s why budgeting for a house is critically important. Budgeting for a house can help you stay out of debt and give you an idea of how much you should spend when you buy a house.
If you want to learn how to budget for a house, you’ve come to the right place.
Here’s a guide that explores how much you should spend on your dream house.
Create a Savings Budget
Before you consider buying a house, you need a budget. You need to assess how much you are going to save each month. Buying a house is the best investment you can make, but you also want to make it one of the wisest decisions you ever make.
That’s why you need a budget.
A budget breaks down your income and divides it. This is helpful so you know where every time is going in order to pay the bills, pay for groceries, and save for a home.
For example, if you have $3000 every month, you would need to divide that so you know how much to budget for your home.
- $1000 for savings
- $500 for food
- $200 for transportation
- $350 for medical expenses
- $250 for personal
- $300 for utilities
- $500 for charity
Now you know exactly where everything is going.
Having a budget can also help you when you buy a house. You need to figure out how much of a down payment you are going put on a house.
You can put up the standard 20% or possibly less depending on if you qualify for a finance program.
How Much Should Your Mortgage Payment Be?
The next step to budgeting for a house is assessing how much your mortgage payment will be. You need to figure out how much you can spend your paycheck to make ends meet.
For example, as a rule of thumb, you don’t want to spend more than 25% of your paycheck. If you earned $3000 every month after taxes, you should only spend $750 per month on your mortgage. If you spend more on your mortgage payment, you could be more at risk of going into debt.
Don’t Forget About Interest Rates
When you are looking at mortgage rates, you want to make sure you have a rate that is reasonable. You don’t want something that is going to hurt your wallet in the long-run.
For example, you want to choose a rate that hovers around 2% and 3%. This will vary depending on if you buy a house with a 30-year rate or a 15-year rate.
Wait to Save If You Can
If you want to buy a home but the mortgage payment is bigger than 25% of your monthly paycheck, then you should consider waiting.
You can either wait for the housing market to dip or you can just wait and save. While it may be difficult to pass on your dream home so you can save a bit more, it may be a good idea in the long run.
The more you save on a home, the lower your mortgage payment is. The goal is to save for a home that you can afford within your paycheck.
Consider the Cost of What You’ll Buy
Another factor to consider when you buy a home is the cost of fixing up the home.
If you want to buy a home for $250,000, but it needs new appliances and fixtures, you may end up spending an additional $20,000. You will have to set aside a budget that accounts for this spending.
That’s why it’s important to consider the cost to fix up the home or replace anything inside.
Another example is if you need to replace the roof. This can cost $20,000 or more depending on the roof you install for your home. When you are considering buying a home, always figure out what additional cost comes with the home.
The final factor to consider is additional costs when you close on a home.
When you are about to make a purchase of a home, you will have to pay for closing costs. These range between 2% and 5% of the home price.
Another cost to consider is mortgage insurance. This is insurance you have to pay for if you can’t pay 20% of the home. It helps you qualify for a loan and protects the lender.
If you don’t take into account these costs, it can hurt you in the long run. You don’t want to spend your entire savings on a house and then realize you don’t have enough for closing costs or mortgage insurance.
You should always have an emergency fund set up so you can prepare for any financial situation that requires additional funding.
Now You Know Everything About Budgeting for a House
Learning everything about budgeting for a home may take some work. You will have to plan out your finances and figure out what you can afford.
This article provides some insight into what you can afford on a home. It helps you figure out things you need to keep an eye out for. Ultimately, the more you understand about budgeting for a house, the more you’ll be financially prepared for it.
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