Buying a house is a major milestone for many people. However, the cost of purchasing a home can be difficult to gauge at first glance. There are fees and other expenses tacked onto the sale price of a home that may push a likely candidate just beyond the reach of their budget. Here are some ways to prepare for buying a house and staying within budget:
1) Budget Realistically – This may seem obvious, but it is a really important first step. Oftentimes people plan their budgets too optimistically based on incomplete information. One of the biggest hurdles people face is overestimating income or overestimating the amount they have saved for a down payment. It’s one thing to set a goal, but it’s important to make sure that the numbers on paper are as close to reality as possible. Otherwise, even a house that is within the written budget may be beyond the scope of real month-to-month living.
2) Research and Shop – There are good deals to be had, but they usually aren’t apparent at first. Don’t get trapped by a desire to purchase right away. Instead, take some time to shop around, find a great interest rate and a house at a great price. Rushing through the shopping process will result in fewer options and will typically come at a higher cost in the end. A great price on a house may be accompanied by a hefty need for repairs or other unexpected expenses. Getting caught off guard by these things will push anyone over their budget limits.
3) Save More – One of the keys to buying a house within a budget is to make a significant down payment. A small down payment will be accompanied by a higher interest rate and the addition of primary mortgage insurance (PMI). Even a single point of interest can have a huge impact on the price of the house long term. PMI will be yet another monthly expense that gets added to the regular principal, interest, taxes and insurance that is budgeted for. Plan to save as much as possible before going shopping, and try to have at least a 20% down payment ready to avoid PMI.
4) Build Credit – Getting intimately familiar with all aspects of a good credit score is one way to help stay on budget for buying a house. It requires an in depth understanding of each element of the credit scoring process, and will narrow down areas for improvement. In many ways this step is a good idea to get motivated to pay down other debt and save more money, which will ultimately lead to a bigger budget for a home purchase in the end, along with a better interest rate and a higher chance of getting approved for the right loan.
Making a home purchase is never a simple decision, nor does it happen overnight. The best way to stay on budget when buying a house is to take plenty of time to plan, improve credit scores, save money and shop around. Only then can the buyer create an accurate budget that leaves plenty of room for finding the right home. Don’t get caught off guard by the additional closing costs and monthly expenses that go along with home ownership.