Whether you’re thinking of buying a home or not, financial planning and saving is a popular New Year’s Resolution. Although some people are already falling from their resolutions, it’s never too late to start a new one. This last year was real estate’s best year since the recovery that began in 2012. Whether is was reports of increased activity during off seasons or extremely low interest rates, most people benefitted. Forecasters are expecting 2016 to surpass 2015, so if you’re planning to buy this year, you’re in luck. Before you begin looking for your dream home, you should have already begun planning financially.
Lenders approve loans to buyers based on their credit, income, assets, job history, and debt-to-income ratio. Debt-to-income ratios are comprised of your monthly debts, like credit cards, car loans, student loans, and current housing payments versus your monthly income. Lenders often approve loans bigger than buyers are comfortable with. It’s your job to make sure that you are capable of handling the approved loan, along with your other expenses. Keep in mind the lenders don’t calculate your other financial saving goals such as vacations, college tuitions, or retirement.
New homeowners can forget that they are going to have more expenses than when they were renters. Homeowner’s insurance and property taxes will be covered by your mortgage payments, but other fees such as homeowner’s association fees are not. When financially planning for your home, factor in at least 1% of the home’s value for maintenance and repairs. Before you purchase your home, you should have already created a budget of your current financial situation. Once you’ve created your budget you can begin planning where you’re going to save.
When it comes to saving, making small changes are just as important as the big changes. There are many resources online in which you can learn to live more frugally, like cutting back on eating out and buying a coffee from Starbucks everyday. In order to save for your future home you should be setting aside a certain amount of money each month. Some ways you can make it easier for yourself is by setting up another savings account. You can set up auto-pay, so when you receive your paycheck it will automatically set aside the desired amount into the savings account. Try saving the difference between your current rent and your expected monthly housing payment. This will not only prepare you for your monthly payments, but it will show your lender you can also afford it. When you receive a bonus or your tax refund, automatically deposit it into your home-buying account.
Financial planning should be your first step into buying a home. Once you’ve established yourself, you can begin the process of looking for homes. You never know, you may be surprised at how much you can actually afford with some simple financial planning.