Are you wondering how to afford a new house? What are your budgeting options? In this financial guide, we cover the money matters.
Purchasing a new house can be exhilarating, but it can also be a fairly stressful process. If you’re thinking of buying your first home or you’re planning to move into a new one, what type of options do you have when it comes to financing?
Today’s lenders offer a myriad of solutions that can help you purchase the home of your dreams. Depending on your current financial status and your budget, there are a few things you can do to be able to afford a new home.
Read on to discover some of those options so you can determine the best course of action to get the coveted set of keys into your hands.
Draft a Solid Budget
A budget is the foundation of any household, business, or individual’s financial plan. Start your new home purchasing process by sitting down and coming up with a solid, reliable budget.
This means you’ll need to create something you can rely on when it comes to determining how much money you have to spend. First, compute your take-home pay after taxes to get a snapshot of your monthly income. This will be your starting point.
Next, write down every single household expense you have. This should include everything from monthly utilities and cable bills to any subscription services you have, food costs, and clothing expenses. If you have children, be sure to include the cost of things like daycare or school expenses.
Once you’ve got a clearer picture of your current budget, it will be much easier to determine how much money you can spend on a home. Use online calculators to guide you and enter your income so it can tell you what you might be able to afford. Remember that these calculators are just estimates, and you should always talk to a lender to get pre-qualified before you go house shopping.
One common pitfall for many homeowners is that they end up being “house poor.” Just because you can afford a home that costs a certain amount, it doesn’t mean you have to buy one in that price range. Try to stay at or below your budget so you have a little wiggle room each month.
Remember the Downpayment and Closing Costs
Your monthly mortgage payment is just one aspect of buying a new home. You’ll also need a downpayment to contribute to your purchase.
Various mortgage plans require a differing percentage of what your downpayment should be. For example, some government loan programs like FHA could require as little as three percent or even no downpayment for qualified buyers.
If you’re thinking of building a new house, a construction lender may require a downpayment as large as 20%. Talk to a hard money lender to find out what those requirements are before you commit to new construction.
In addition to your downpayment, you’ll also need to have funds available for the closing costs. Depending on the terms of your loan, you should factor in around two to six percent of the home’s price for closing costs just to be safe.
If you make less than 20% downpayment on your home, you will also be liable for PMI or Private Mortgage Insurance. This can add a significant amount to your monthly payment depending on your credit score and other factors.
Buying a home requires a lot of cash upfront in order to close the deal. Keep this in mind as you start your financial planning so you’re prepared when you make an offer.
Find New Ways to Earn and Save
As you explore the different financing options available, you’ll also need to start focusing on saving. You can do this by putting extra money into a high-yield savings account, or you can try investing some of your money if you’re feeling brave.
The key to being able to afford a new home is to learn how to manage your money more effectively. Pay close attention to where you’re spending and consider making a few cuts. Anything you save should be immediately put into your savings account for the home.
In addition to some helpful savings strategies, you can also come up with a few ways to earn extra cash. Consider selling items you no longer use online or at a local yard sale. Not only will you make some money, but you’ll also get rid of things now that you won’t have to deal with on the day of your move.
Consider a second job or a side hustle to help you bring home some extra cash. Whether you drive for Uber or work part-time on the weekends, it’s a great way to bring in more money that you can use to focus on buying your new house.
Consider a Fixer-Upper for Your New House
If you think you’re fairly handy and have the extra time, a fixer-upper is another great way you can save on the cost of a new home. Look for something called fix and flip loans that offer you special financing to purchase a home, and then “flip” it to make it the way you want it.
Most of these types of hard money loans are given to investors, but you could also qualify, too. Talk to a hard money lender to find out what the current guidelines are if you think that fix and flip loans could work for you.
While this type of loan requires a lot of patience, your hard work will be worth it. This financing allows you to obtain a piece of property and put in the work to put your own personal stamp on it. If you have the time, resources, and energy, a fixer-upper can be a fantastic investment.
Remember that these types of loans tend to have higher rates and shorter repayment terms. That means you’ll need to start working on your project right away so you can convert it into a different loan product later.
Remember the True Cost of Homeownership
Buying a house comes with a lot of responsibility, and it can cost you more than just your monthly mortgage payment. Depending on the age of the home or other factors, you might need to sink even more money into upkeep or renovations.
The cost to maintain a home can vary, but you should always set extra money aside and put it into an emergency fund in case something goes wrong. Property taxes are another variable that can change as time goes on. For example, if tax rates increase in your area, so will your monthly payment.
Make sure the home you choose is energy efficient to help you save on heating and cooling costs. Get a thorough home inspection before you make an offer so you can identify any major problems before they become your responsibility.
Opting for new construction might cost you more money upfront, but you can certainly save more on maintenance or repair costs if you choose this route. In addition, many home insurance providers will offer a discount to people who purchase new construction. A brand-new home will have fewer issues in terms of dealing with problems regarding the insulation, electrical wiring, plumbing, and the roof.
Be Reasonable and Realistic
Everyone has expectations of what their new house should look like, where it should be located, and its features. As a homebuyer, it’s crucial to remember to be realistic when it comes to buying a home.
You might not be able to afford that huge home on a corner lot uptown right now. However, as you start to save and grow financially, that dream could become a reality later down the line.
Try to be patient and realistic when you look for a new home to buy. Stay within the confines of your budget so you don’t end up overspending and turn out to be “house poor” as time goes on. Simple upgrades and changes can always be made as your income increases or your budget changes.
Once you learn the basic principles of saving, budgeting, and homeownership, the dream of owning your own home will be well within reach. Talk to different lenders and find out what types of loans you qualify for so you can get started.
Only choose a home that you can handle in terms of maintenance and other costs. If that means your new house has to be smaller than you originally wanted, at least you’ll save on things like replacing the roof or HVAC unit later.
Owning a Home is Within Reach
Talk to a hard money lender or your local bank to find out what type of financing you can qualify for when looking for a new house. With proper planning and a good budget strategy, it’s easy to save for your downpayment and other costs.
Remember to be patient and realistic in your homeownership goals. Consider a new construction home if you’re concerned about maintenance costs or you want to build a home that’s to your specifications.
If you’re interested in a fix and flip loan, bridge loan, or a construction loan, visit our website today to learn more about what types of loans we offer.