Buying a house is one of the first major investments you make in your lifetime. When you buy a house, not only is it an expensive purchase. However, there are many steps and processes you can take to ensure you’re financially ready to buy a house.
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In addition to making a down payment, you also have to think about a mortgage, utilities, insurance, not to mention if you need to break lease to buy house. These steps take a lot of time and budgeting to ensure you have the financial means to make these payments each month.
The guidelines below can help you determine whether you’re financially ready to buy a house.
Are You Financially Ready to Buy a House?
One of the first questions many people ask themselves when buying a house is how much they can actually afford. Real estate costs a lot of money nowadays, no matter where you’re looking.
If you’ve been planning on buying a house for a while and had a long-term savings plan, you might’ve saved up for a sizeable down payment. When you’re shopping for a property, figure out how much down payment you need to put in based on the price and whether you can afford it.
It’s also important to identify any additional payments, such as monthly mortgage payments, utility fees, and building maintenance fees.
Can you afford a down payment?
The amount of down payment you need to put down on a house depends on it price. For example, the minimum down payment for a house that’s $500,000 or less is 5% of the purchase price.
The more expensive the price of the home is, the more expensive your down payment will be. A house that costs $1 million or more requires a minimum down payment of 20% of the purchase price.
The down payment typically comes from the available funds you have, so it’s better to ensure you have enough money saved to afford the house you want.
Do you need mortgage approval?
If you don’t have enough cash to pay for a house right now, then you might need to get a mortgage. Similar to the affordability of a house, you also need to determine how much mortgage you can afford.
Mortgage professionals use the gross debt service and total debt service ratios to determine if borrowers can afford a home.
Getting mortgage approval from a mortgage broker or lender requires record of your employment, assets, and debts or financial obligations. This includes any credit card balances and loans you have.
Can you afford home renovations?
Your new house might require some renovations to fix up older areas and make it your home. Renovations are also a huge financial project that can be very expensive. Ensure you have enough savings set aside or can take on a loan that you’re able to repay.
Some credit cards offer rewards and benefits that are great for home renovation financing. With the right spending and repayment strategies, you can finance large or small renovation projects responsibly and can plan for the changes you want.
