Before you decide to buy a house it’s a good idea to determine how much you can afford while still living a comfortable lifestyle. One of the best ways to do this is determine what your monthly carrying costs will be and each month put this amount aside in a savings account. This will work as additional money for your down payment or new furniture. If you currently have a mortgage or rent deduct that from the amount you put aside, ie. If you calculate the new monthly amount will be $3,000, and you are currently paying $2,000 put away $1,000.
To figure out the cost of your new home determine:
- Your monthly mortgage amount – to do this you will need:
- the price you expect to pay for a house
- plus closing costs
- minus your down payment
- at current fixed interest rates
- use a “mortgage calculator”
- Annual property taxes (divided monthly)
- Utility fees
- Condo association fees (if applicable)
As a rule of thumb, when doing budgeting its always better to overestimate costs than under. This includes interest rates (especially at these all time lows), mortgage amounts etc. This way you end up with extra spending/saving money at the end of the month – not coming up short $100.
If you are able to live comfortably putting this amount aside each month then you should be ready to take on a new mortgage. Make sure you are still able to put some money aside in an emergency savings account. If you are unable to make ends meet with the new proposed budget, take a look at your spending habits and see what you are willing to go without for your new home – if you simply can’t make any changes then you might need to adjust your price range or look at the possibility of generating more income, perhaps from the house itself.
If you have any questions about budgeting for a new home please do not hesitate to contact me, I will be happy to assist you.