Home buying can be boiled down to one simple rule: purchase as much as you can afford. It is a simple task to budget for a home. However, the definition of “affordable” varies from one buyer to the next. The median sales price for homes varies over time, which is an indicator that some home buyers are willing to pay more than others.
No matter where you are on the spectrum, buying a home will be one of the most significant single purchases you will ever make in your life. However, finding the sweet spot of affordability will need much more than just a few simple calculations. First-time buyers have a tendency to shop based on the amount that a lender is willing to provide them, without factoring in other inevitable overhead expenses. This rushed decision-making process can be a precursor to financial hardship in the event that a monthly payment is missed.
The 28% Rule
One of the simplest rules is that your home budget should not exceed 28% of your total monthly income. This ensures that you always have enough income left to meet other necessary expenses and it’s a figure looked at by most lenders when considering your applications.
While getting a pre-approved home loan is the essential first step in the process of buying and acquiring the home of your dreams, the downpayment and loan are not the only recurring expenses that you will incur on your journey to being a homeowner. Several other factors come into play such as insurance, repairs, maintenance costs, utilities, property taxes and more. These expenses can significantly add to your monthly payouts, making a home that once seemed affordable, out of reach. An EMI worth Rs X may be palatable, but don’t forget to factor in other costs that will go into your investment as you personalize and develop your own unique taste in your space.
Your Downpayment Decides
Generally, lenders expect new home buyers to pay at least 20 percent of the total value of the purchase in cash. The amount you save for the down payment also influences the house that you will buy. If you are able to take on and payout multiple loan schemes, it will greatly boost your credit scores and improve your chances of getting more pre-approved loans.
Choosing the perfect property
While trying to arrive at the actual affordability of a home, first-time homebuyers will need to consider and deliberate on the size and scale of the property of their choice. After all, bigger isn’t necessarily better, especially if you have a small family or are a bachelor. A large home may be the ideal dream, but maintaining a large house with a single occupant can be more of an expense than an ideal investment. Consider hiring a cost estimation expert to get a clearer idea of what your actual costs might be and remember to be honest with yourself about what you need - it will go a long way in helping you choose the dream house.
If you’d like to know more about choosing a property that fits your budgets, or even if you’d like to speak to one of our many partners regarding the right home loan for you, do reach out to us at any time and we would be glad to help. At Bricks & Milestones, we listen to your needs and we can guarantee that we have a home that will fit all of yours.