Buying Your First Home? Let’s Talk About Cost
Buying a first home is one of life’s most exciting events. But it doesn’t come without its fair share of worry. After all, we want to ensure that the home we’re buying is not only a good fit for our families and lifestyle, but also our budget. The problem is, far too many first-time buyers get sucked into the excitement of shopping for homes and end up buying more home than they realistically need (and can afford).
When you’re shopping for your first home, it is important to realize that for most people their first home isn’t their last home. In fact, many first-time homeowners often find themselves moving after five years of living in their first homes because either their families have grown, their finances have improved, or both.
So, when you’re buying your first home, it is important to make sure you don’t overspend. Instead of looking at it as how much should you spend on your first home, focus on how much you can afford.
Financial Considerations To Keep In Mind When Buying Your First Home
When you get preapproved for your first mortgage, the lender will tell you how much of a home loan you qualify for. But you shouldn’t look at this number as how much you can spend on your first home. The reason is because the lender qualifies you based on specific financial and credit data, not your real life situation.
In many cases, a buyer will have expenses that the lender doesn’t take into consideration, like costs associated with things like medical care, retirement account deposits, investments, back taxes, lifestyle habits, utilities, subscriptions, automobile repairs, and more. Each of these things can dramatically reduce the amount of money you have available to put towards a monthly mortgage payment.
You also need to look at your immediate future and how your decisions might impact your financial situation. For example, are you planning on having children? Will your plans result in you or your partner not working? Are you planning on changing careers or starting your own business?
General Rule for Spending for First-Time Home Buyers
Most experts agree that the general rule to follow for first-time home buyers is to not spend more than 33% of your gross monthly income on your mortgage payment. In fact, this is usually the guideline that most lenders use, but remember, lenders don’t always take into account all your monthly obligations when determining their number.
But for many first-time buyers, 33% of their income is still too much. According to The National Association of Realtors, a mortgage is considered unaffordable if the monthly payment of principal and interest adds up to more than 25% of the family’s income. The reason is because housing costs can be burdensome if they take up more than 30% of income. The 25% share of mortgage payment to income provides a bit of a buffer for additional expenses that can make owning a home more expensive, such as insurance, taxes, repairs, and maintenance.
Because of this, it is up to you to do the leg work in figuring out exactly how much money you can safely afford to spend on your home. You need to take your gross monthly income and subtract all your monthly debt obligations, not just those that show up on your credit report. You need to factor in the interest rate of your mortgage, property taxes, insurance fees, and all other costs associated with buying the home, including closing costs.
By taking your real-world financial information into account, you can have a better idea of how much you can spend on your first home, so you don’t find yourself in a bad financial situation and suffering from buyer’s remorse.
Connect With a Mortgage Lender You Trust to Learn More
Understandably, this can all be a little overwhelming to some first-time buyers. Luckily, there are plenty of mortgage lenders out there who will be more than willing to help guide you in the right direction. Just do your due diligence and research local lenders to find one that you can trust. Ask your family, friends, and work colleagues for references, and check online to find out what others are saying about their services.
Once you partner with the right mortgage lender, they’ll help you navigate the often complex and confusing processes of buying the right home for the place where you’re at in your life right now, personally, professionally, and financially.
