It happens to so many young couples. After working for a few years and saving up some money the decision is made to make an investment and purchase a first home. It’s easy for this happy event to turn into a burden a few months down the road when the new homeowners realize that they actually could not afford what they purchased and they have to make a quick decision before they fall quickly into debt. This problem begins at the moment that a couple decides they want to purchase a home, and they don’t realize there are a lot of factors to consider.
Before an appointment is made with a mortgage representative in the area it’s important to understand what personal finances are available. A wise idea is to purchase a home based on one person’s income even if a second income is available.
This way if some unfortunate circumstance takes place and one person loses their job, money will still be available even though it will be tight. You won’t be at risk for losing your home if you can make the mortgage payments each month. After choosing the income you’re going to base your finances off of, and then look at the other expenses that will occur on a monthly basis.
Depending on the age of a house, the size and the location, utility bills will vary and should be considered as an additional expense besides a mortgage payment. Don’t forget we’re not just talking about electric and water, but also garbage service, landline phone service and so on. Owning a home is different from renting an apartment where often, certain utilities are included in the monthly payment and you have a landlord who replaces things for you.
Also consider luxury expenses such as cell phone service, cable television, internet service and car payments. Other expenses that should be taken into consideration is how much is spent on groceries on a monthly basis, how much does it cost to keep vehicles filled with gas, and also allot a certain amount of money for additional expenses such as doctor’s visits, personal items, clothing, social events, pet supplies, etc.
Figure out what amount of money you would like to allot as the down payment. You don’t want to completely deplete your savings but you want to put down as much money as you can because this will lower your monthly payment quite drastically. You will also be saving money on interest in the long run.
You may want to consider how much money is being put away each month, and what expenses will be coming up in the near future. Leave yourself enough money to cover expenses and any unforeseen circumstances. Figure out how long it might take to replenish that saved money and realize that you’re not throwing that money away, you’re actually making a very wise and very impressive investment.
When it finally comes time to stop at the bank of your choice and get pre-approved for a mortgage, bring all your calculations with you and come prepared with whatever paperwork you may need. This normally includes past tax returns, pay stubs, and W-2’s. Listen to what the representative has to say and feel free to ask as many questions as you would like. It’s not everyday that you purchase a home, so it’s normal that you will have a lot of concerns. Make sure you go home satisfied.
When you have been pre-approved your bank will give you the amount that they will finance you for. This amount determines what kind of house you can look for, but beware. Typically banks will offer you a mortgage much higher than what you should utilize.
My husband and I were pre-approved for an insanely high amount, and we purchased a home that was about $70,000 less than what we would have been able to be financed for. Had we purchased a home that would have been worth that full mortgage amount we would probably be in debt right now. Our mortgage payment would be so high each month that we would have no money left over for all our other bills or to put away in our bank account.
Use your own original numbers to determine what price range you can look at and what is going to work for you. Keep in mind that banks make their money off of your interest. The more late fees and interest you accumulate, and the longer it takes to pay off your mortgage the more money they’re going to make.
Not many banks will go the extra mile to make sure you won’t be in any financial trouble in the future. It’s your personal responsibility to know your finances and be aware of all expenses you are going to incur. Also don’t forget to save some money for closing costs. There are attorney fees and processing fees that add a bit of money to your mortgage amount, so include that in your figures.
Owning a home is an exciting thing. It’s an investment and it’s a great move towards success. The important thing however, is that you are wise with your choices. We would all love to live in an enormous mansion overlooking the ocean that has private tennis courts, a pool and a Jacuzzi but it’s not practical for many of us. When you buy a house you still have to personalize it in order to make it your own. With a little bit of work and creativity you can create your very own dream home.