A home purchase is one of the major purchases that anyone makes in his life. Finding how much one can afford can help them get a pre-approval mortgage and save them from expenses-related trouble later on. Although homebuyers know about expenses, such as closing costs and down payment, they must also know of other costs associated with ownership. Insurance, property taxes, and regular maintenance are some of these costs. We have curated this article to help you financially prepare for buying a home.
1. Find your purpose behind buying
Why are you buying a house? What specifically are you looking for—more room, security, or money? Consider your needs and lifestyle when deciding whether to buy a property in Mohali, as doing so will assist you in choosing the ideal home or property. Determine how long you intend to stay in the house as well. All of this will assist you in creating a financial plan or budget and achieving your long-term objectives.
2. Determine your budget
Establishing your budget is one of the most vital steps in planning to buy a new house. And your income is not the only thing that you need to consider; The following factors also play a prominent role in determining how much you can afford.
Your monthly expenses- Consider expenses for transportation, utilities, food, education, childcare, and other costs besides your monthly income. By deducting your monthly expenses from your salary, you can determine your disposable income or the amount left over after all your bills have been paid.
Your debt-to-income ratio- Your debt-to-income ratio will help determine whether your home loan application will be approved. You can calculate your DTI ratio by dividing your total debt payments (car loan, credit card payments) by your gross monthly income.
Use a mortgage calculator- After you get an idea of your monthly expenses and DTI ratio, use a mortgage calculator to find how much you can spend on monthly payments. A property consultant in Mohali can give an estimate of your loan payments by helping you determine interest rates, loan terms, etc.
3. Save for the down payment
While purchasing a home, buyers have to pay a sum as the down payment, which is a certain percentage of the total home price. Some steps that can help you save for down payments are below.
Set a goal for saving- Determine how much you need to save according to the price of the house and the amount lenders require. And then set a timeline to save the money, such as six months or a year.
Automate your savings- Setting automatic transfers to a separate savings account dedicated to the down payment will make it easier and more convenient for you to save and help you avoid spending money unnecessarily.
Discover ways to increase income- You can speed up your down payment savings by increasing your income. A part-time job or freelancing can help you earn extra money for your dream house. You can take the help of the internet to seek other ways to increase your income.
Be patient- Effort and sacrifice are required to do savings for a down payment, but homeownership is worth it. So, stay focused on your savings goals and be persistent in your efforts.
4. Plan closing costs
Closing costs are expenses like appraisal fees and loan origination fees that home buyers have to pay along with the down payment. These expenses are services that lenders and third parties provide, such as credit report fees, survey fees, title search and insurance. You may also have to pay other expenses with these costs, such as property taxes and homeowner’s insurance. Also, note that closing costs may vary according to the property price, location and type of the loan. So, while creating a home-buying budget, don’t forget to consider closing costs and the down payment.
5. Create an emergency fund
An emergency fund will help you cover your monthly mortgage payments in case of any unexpected expenses or financial issues, such as job loss and medical issues. Also, once you own a home, the landlord will no longer be liable to pay for repair and maintenance. You might think the home you have bought does not need repair, but some issues come as a surprise. And some repairs can be expensive, and one can not avoid it. So, having an emergency fund will help you cover the cost of costly and unexpected repairs.
For many Indians, owning a home is a dream, but if you miscalculate your finances, it may turn into a nightmare. When it comes to buying a home, first-time buyers are the most vulnerable. So, they must ensure how much they can afford before buying a house/property. Without the steps above, they may own a home but at a high financial cost. Study the substantial impact on house prices and comprehend the components that drive property appreciation and market volatility.