Becoming a homeowner costs money. But not just a little money. If you’ve already begun house-hunting, you’ll know that the prices are pretty high these days. So, how can you achieve that life goal with the money you’re earning now?
The answer is simple: you have to figure out how much you can afford to pay for a house. If you don’t, you might have to keep renting or look for something cheaper than what you want, which defeats the entire purpose of homebuying.
This may seem daunting at first, but the price of your future house will depend on what kind of property you’re planning to buy. Do you want a two-bedroom apartment in the middle of the city or would you prefer a bungalow in the suburbs?
However, before you delve deeper into the specifics of what kind of house you’re going to buy, you have to figure out your finances first. That way, you’ll know exactly how much you can spend on your new home. So, here are some basics of homeownership that you need to know before you go house-hunting:
What is a mortgage?
A mortgage is a process of borrowing money to purchase a property, either for personal or business use. Many factors go into determining mortgage eligibility, including credit history and debt to income ratios. That means when you’re in the market for a mortgage loan, it’s time to get serious about your goal of homeownership.
You don’t want to risk not being able to find something in the right price range, so it might be best to consult a mortgage broker to determine exactly how much you can afford. This way, you don’t even have to guess because you’ll know, and you can make an offer on the first house you fall in love with.
What is a down payment?
A mortgage requires that you put down a certain amount of money before you can begin to make monthly mortgage payments. This down payment is an initial investment in your mortgage, and it’s the part of the mortgage process that will give you total ownership over financial responsibilities.
How much house can you afford?
Knowing how much house you can afford is the first step toward homeownership. To determine that, start by adding up all your monthly expenses like rent, car payments, student loans, and credit card bills. Then consider other homeownership costs like property taxes and homeowners insurance.
With these figures in mind, you can start looking for houses within your price range. Once you pick out a home, consider using a mortgage calculator to determine how much of a down payment and monthly payments you will need.
Frequently asked questions about buying a house
If you’re like many first-time homebuyers, you probably have tons of questions lingering in your mind. Here are some of the most frequently asked questions that may help you navigate the road to homeownership:
1) How much should I plan to spend on a house?
When it comes to buying your first home, many factors will affect the price of the property. While the location is key, you also have to consider features like appliances, the number of bedrooms and bathrooms, and general size. These details all contribute to the price tag of buying your first home, but it’s important not to lose focus of your budget.
2) How much should I put down on a house?
Typically, mortgage lenders expect homebuyers to put down 3-20% of the purchase price of the house for a conventional loan and 3.5% for an FHA loan. The more you invest upfront, the better off your mortgage will be.
3) What is a mortgage calculator?
A mortgage calculator is a software program that helps homebuyers determine those all-important numbers like monthly payments and interest rates. Depending on your income, credit score, and down payment amount, you can plug in these numbers to see exactly how much money you need to buy the house of your dreams.
4) How does homeowners insurance work?
The final step before closing on your first home is to purchase homeowners insurance. This form of insurance will protect you if anything happens to your house, like a break-in or natural disaster. Most homebuyers take out an unexpected insurance policy, which will cover any sudden and unpredictable losses.
If you’re thinking about buying a new home, be sure to consult a professional because they can help you understand your down payment options and determine how much house you can afford. That way, you don’t have to risk overspending or losing out on the perfect house because it’s outside your budget.
Read more: Mortgage Advice for a First Time Home Buyer