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3 Home Buying Budget Questions

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This is an excerpt from our eBook, Which Mortgage is Best for You. Get the full eBook for FREE. Download here.

 

Buying a home might be the biggest purchase you’ll ever make. It’s important to make sure you have a solid understanding of your financial circumstances, both present and future, before buying. Here are three questions every home buyer should ask themselves to better understand how to budget for and find a home that is affordable and fits your needs.

 

What major expenses do you anticipate over the time you will own the home?
Do you anticipate any major expenses like those that come with expanding your family or sending the kids to college? If so, you’ll want to spend less on your house so you have the cash flow to pay for the daily expenses of raising children and the large tuition bills you may pay. You also want to make sure you’ll be able to save at least 15% of your income for retirement; you don’t want to reach the end of your career and have a house that’s paid off but no nest egg to buy groceries, pay for health care or travel.

 

How will your income change over the time you plan on owning a home?
Your income will likely change over your working years. For most people, it increases as they gain skills and experience and get promoted or apply for higher-level positions. If you own a business, it might continue to grow as you get better at running it. And some people anticipate receiving a significant inheritance when parents or other older relatives pass away.

 

At the same time, you may need to plan for a decreasing income if you work in a declining industry and anticipate a major career change, if you know you’ll be financially responsible for aging parents or if you’re retiring in a few years. Mortgage lenders will base their decision on what your bank statements, tax returns and credit reports say you can comfortably afford now, but you should also consider what you’ll be able to comfortably afford in the future. It’s important to make an educated guess about where your income and savings are headed before you decide how much to borrow and what type of loan to get.

 

How will buying a home affect your current and future savings?
Whatever amount you have in your savings account right now is likely to change significantly after you buy a home. Most people put money toward a down payment, loan costs and new home expenses like furniture and decor. Sometimes they even do major renovations.

 

Before you commit, it’s important to figure out how much money you want to have left after all of these expenses. You need an emergency fund in case you get laid off or have a major unexpected expense. Once you own a home, you’ll not only need to be prepared for possible large medical bills or car repair bills, you’ll also need to be prepared for pricey home expenses like a new roof or paying your insurance deductible after your home is damaged by a storm. Not only do you want this cash cushion, lenders typically require it.

 

Want to learn more about how lenders decide the mortgage qualifying process? Check out our new eBook, Which Mortgage is Best for You. This eBook will show you:
 

  • Important financial questions to ask yourself before buying a home.


  • The pros and cons behind the most common mortgage products available today.


  • How lenders determine if you qualify for a mortgage.

 

Learn valuable information to help you make the best home financing decisions. Download this free eBook here.


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