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Buying a new home is overwhelming and is likely the largest purchase you will make in your life – so it goes without saying that this is not an impulse buy – but one in which preparation and research are key. Here are ways to budget to buy a new home.
Know Your Monthly Income & List Expenses
Review your pay stubs and find out how much money you are left with each month after taxes. Next, you need to write out all your monthly expenses like bills, utilities, insurance, as well as groceries and any extras such as tuition. The number you have left is your expendable income. You can find free online budget plans that organize your spending and tracks outgoing expenses.
There are dozens of ways to save money each month. It can take a little effort figuring out how to reduce expenses on things like transportation, insurance premiums, phone, and cable bills, but the result usually is less strife in your life and that’s a good thing for anyone. When you go to the grocery store, go prepared. Studies have shown almost 70% of purchases are impulse buys, so make a list beforehand and stick to it.
Pay Off Debt
Yes, you can buy a house with debt, however, it is much easier to have a handle on your mortgage payments when you don’t have to worry about outstanding debt. It will also improve your credit score, an important determinant factor when purchasing a home, by minimizing what you owe as much as you can.
Buy Less Than You Can Afford
Buying less house than you can afford means your mortgage is a very manageable payment and you still have plenty of income left every month. That income can then be used for living, giving and investing in your future. Also, you will be able to pay off your home much sooner. Use a house payment calculator to estimate your monthly mortgage payment, including principal and interest, taxes, homeowners insurance, and private mortgage insurance (PMI). You can adjust the home price, down payment and mortgage terms to see how your monthly payment will change.
Getting preapproved can help you set realistic expectations about what you can afford. You’ll have a conditional green light from the lender for a specific loan amount, so you can focus on homes in that price range. It’s up to you to review your budget to make sure the loan amount is one you’re comfortable with. Don’t rely on your lender completely to tell you what you can afford.
The written offer is legally binding, so in most cases, a simple letter won’t work. There are many states, and sometimes local, laws guiding the process, so you’ll want to cover all the bases by using a legally approved form. It’s not a done deal until both parties sign the offer agreement. Once that’s done, after the brief celebration and sigh of relief, you should be ready to get down to the serious business of closing the sale.