How to Stay Within Your Means When Shopping For a Home

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Too often when homeowners work out the numbers to buy a new home, they neglect to consider all the factors at hand.  Sure, there is a payment – and most listing sites online will calculate and show the home mortgage payment estimate at a very reasonable level.  But what many people fail to realize is that the mortgage payment shown on those sites does not take into consideration a lot of other expenses as well.

When buying a home, it is absolutely essential to know exactly what you can afford and to buy only within your means.  In fact, had many homeowners bought within their means several years ago when it was very easy to obtain a mortgage, we might not have millions of people facing foreclosure and short sales nowadays.

Looking Beyond Your House Payment

It is critical for homeowners or prospective buyers to consider what they can afford before shopping for a new home.  A visit to the Realtor of your choice will help guide you in terms of matching the homes that fit your requirements with the budget you have in mind. Keep in mind that aside from the actual house payment, owning a home entails homeowners insurance, maintenance costs, housing taxes, utilities and monthly private mortgage insurance for those who do not have enough for a 20% down payment.  This can add up significantly and though it may look on paper like the monthly payment is the same as if you were to be renting, the truth is the costs can be much higher than renting.

Know Where Your Credit Stands

With the heavy regulations and guidelines placed on lenders these days, banks are even more careful about handing out loans to applicants who have borderline credit ratings.  It is very important for you, as a consumer, to know and understand your credit rating.  Nowadays, for an FHA loan, banks require a minimum FICO score of at least 620 to even accept an application.  Conventional loans have an even greater minimum credit score requirement.  If your credit suffers from some damage, be sure to actively repair it before applying for a mortgage so that the chances of approval are greater.

Bring Income-to-Debt Ratio To a Good Level

The amount you earn versus the amount you owe and the corresponding ratio is called the Income-to-Debt ratio.  Banks expect that you should owe no more than about 28 to 30 percent of your income.  The types of debt they take into consideration here are student or personal loans, credit card debt or other monthly payouts such as car payments.  Here is a calculator to help determine your current ratio.

Don’t Forget the Initial Cost to Buy the Home

Too many prospective homebuyers forget to factor in the expenses needed to actually purchase their home.  From paying for home inspections, appraisals, closing costs and down payments, to lending fees, documentation fees plus the real estate agent commission, things can add up fairly quickly.  Unless you have the amount needed to get through the transaction using cash on hand, it may be useful to reconsider the purchase until you do have the funds available.

Moving and Set-Up Costs Often Get Left Out of the Equation

After all is said and done, there is the cost to move into the home.  Depending on where you are moving from these costs can get pretty high.  For some homeowners, the need for additional furniture, more household items, expenses to repair or renovate some areas of the new home and of course the cost of moving – wipes out their entire savings.  Be sure to incorporate the cost of the move-in stage into the overall equation when deciding how much you can afford.
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At the end of the day, you will need to be able to afford all costs in order to get into the house and then all expenses needed to be able to maintain living in the home.  As long as you can comfortably afford it, plus other expenses of life, you can safely go ahead and sign that dotted line.