Buying a home may be the largest financial investment you will make in the near future. It’s an exciting event in your life, but budgeting for a new home can feel like a major endeavor. There are certainly a lot of questions to consider when you are planning to afford a new home.
You may be wondering when exactly you can afford to buy a new home. Or, perhaps you are at the beginning of your homebuying journey and would like to know how to save for a new home. If you are considering a new construction home, you may be wondering how to afford upgrades on a new house.
All of these questions, and others, have to be taken into consideration when putting together a budget for your home. We’ll help you to start planning by breaking down some budgeting steps to make buying a new home a reality.
It is hard to know when you can afford to buy a house, especially if you are a first-time homebuyer. But the key is understanding the elements that add up to the total cost of your future home. Once you have a handle on these, you can determine your target home price and whether your current budget is up to the task of paying for a new home.
Take these costs into account:
Since you are shopping for a home, we suggest calculating your potential mortgage payment first. Simply find a mortgage payment calculator online and use it to estimate the payment on the prices of several homes that have caught your interest. Then, compare these monthly payments with your current budget. You will soon have an idea of whether or not your payment is affordable from month to month over the long haul. Try several different home prices to hone in on the most affordable mortgage options.
Next, play with the numbers by adding in a down payment. Notice how different down payment amounts change the mortgage payment on the properties that interest you. Again, try several in your potential price range to get an idea of what kind of down payment will work within your budget.
This process will help you to come up with a range for the down payment that looks ideal for you. Next, calculate, based on your current budget, how much time you will need to save for that ideal down payment amount.
In the United States, there can be advantages to having a down payment of 20% on a conventional loan. It can help you avoid paying private mortgage insurance (PMI). In Canada, CMHC mortgage loan insurance lets you get a mortgage of up to 95% of a home’s purchase price, if you qualify for a loan.
Closing costs are one of the upfront costs you need to plan for when buying a home. You can count on closing costs typically adding up to around 3% to 5% of your total home purchase. Once you start identifying properties in your price range, knowing that you will need to set aside this amount will help you to make any adjustments necessary. When you have an amount in mind, you can also make a plan for saving the down payment amount over a reasonable period of time.
A common mistake some first-time, and even veteran, homebuyers make is not saving for future costs. Many maintenance issues may come up over time in your new home. For example, your home may eventually require a new furnace or air conditioner, gutter repairs, roofing, or even just some upgrades you would like to make. It’s best to set aside money for these costs from the beginning.
If you are a first-time homebuyer, you may benefit from using a first-time buyer savings plan. These plans are usually tax-advantaged savings plans that allow you to save and pull out money without worrying about large tax obligations in the future. Check with your financial institution and your home state’s website to look into savings plans options for homebuyers.
When it comes to budgeting for a new home, the earlier you start, the better off you will be. As with any large purchase, saving up for the costs involved may take time. We recommend drawing up a budget for your new home before or as soon as you begin your home search. Going in with a budget in place for a new home can give you peace of mind. You’ll know what you can afford, and when you can afford it, from the beginning.
You’ll want to mind your credit score when you are looking to save for a new home. Having good credit can help you get a lower interest rate from mortgage lenders. There are practices you can use to begin to fix your credit to buy a house. Under some circumstances, you may be able to buy a new home even if your credit is less than ideal.
Whether you are looking for your first home or have your forever home in mind, Brookfield Residential can help you find your next dream home and help connect you with lending institutions that can guide you. Check out our communities. You can search for beautiful new homes in multiple locations to find your dream home.
Contact Brookfield Residential today and learn about options that may be available to you.