A home should be a refuge, a place where you can leave the worries of the world behind and relax with family, friends, or a good book and a glass of wine! But worrying about your finances is one sure way to erode your confidence in and enjoyment of your home. This is why it is so important to live within your means when it comes to purchasing a house.
How Much House Should I Buy?
How much home can you afford? The answer is not necessarily the size of the loan for which you qualify. You may find yourself overextended and scrimping to get by. Instead:
- Look At Your Income
Sit down and get real. Add up all sources of monthly and other income. If you get weekly checks for $1,000 (easy math), and your partner receives twice-monthly paychecks for $2,000, then your income is: $1,000 x 4 (most months) + $4,000 = $8,000. This is your monthly income, the first step of your budget.
- Examine Expenses
Good thing you’re sitting: it’s time to look at your expenses. Where does each dollar go? List your bills (including monthly, quarterly, and annual bills), retirement fund deposits, savings deposits, food transportation costs, medical expenses (e.g., prescriptions), recreation, and personal needs.
How do expenses line up with income? Do you have a “cushion” to put towards a down payment? To start saving for repairs, improvements, and upgrades to a home?
- Figure Out How Much Owning a Home Costs
Experts recommend that your housing payment (including home owners’ insurance and insurance) should account for no more than 25% of your take-home income. So, if we’re bringing in $8,000 a month, that would be $2,000.
You also need to factor in other expenses, such as maintenance, repairs, upgrades, furniture, appliances, lawn care, utilities, transportation, etc. Utilities and transportation costs may increase, depending on your home and its location.
Again, look at your current income and spending levels. Do they allow you to live within your means now? What if you purchase a home? What if you start or grow your family? There are a lot of considerations to keep in mind.
- Make Strategic Changes
When home ownership is your goal, it’s a great idea to start trimming your expenses and planning for the future. For example, can you cut down on recreation costs (e.g., taking advantage of free events in your community, cooking at home, hosting potlucks, etc.)? Can you lock in a mortgage with lower interest rates? Remember the 25% suggestion.
- Increase Your Buying Power
By looking into energy-efficient, high-performance homes, you can cut associated home owners’ costs, such as utilities. These homes are built to last, so you can plan more strategically for major repairs a decade or two down the road.
Talk to the Synergy Homes team today to learn more about tips to live within your means – and love your home.