"I think there is beauty in everything. What 'normal' people perceive as ugly, I can usually see something of beauty in it."—Alexander McQueen

"I think there is beauty in everything. What 'normal' people perceive as ugly, I can usually see something of beauty in it."—Alexander McQueen

buying a new house

3 Budgeting Strategies for Buying Your First Home

For most people, their biggest expense is housing. Rent takes a big chunk out of their monthly paychecks, and many middle-class families save to buy a house in mind. People buy homes for all sorts of reasons: stability, convenience, and proximity to schools and offices.

However, not everyone can buy a house outright. Many people have to apply for mortgage loans in Grand Junction. Your financial status affects the type of home you can get, how much you can spend, and the down payment you need to pay.

You will be surprised to find out that many people make rash decisions on such a big purchase. What should be a source of peace and stability for you can end up causing stress and financial struggle.

1. Start an emergency fund

Homes are big-ticket purchases. The initial price tag of the house is just one part of the total cost of being a homeowner. There are other fees and expenses you have to stay ahead of, and you might feel like you are drowning in payments. You have to pay for insurance, property taxes, homeowners association fees, not to mention the cost of maintaining and keeping your home in a livable state.

If you want to ensure liquidity, you need to pay off all your debts and start an emergency fund worth half a year’s expenses before purchasing your home. Moving into your home with existing debt only adds to the pressure, and being debt-free allows you to pay new bills without worrying about old ones.

2. Buy what you can afford

real estate agent

This should be a no-brainer, but buy a house that you can afford. You want to make sure you want to move into a home that gives you peace and relief, not stress and financial struggle. You might have found a home that you think is perfect for you, but if you cannot afford it, it is not the right option.

Just because your bank prequalified you for a jumbo construction loan does not mean you can afford your home. Check your income and budget. Your total housing costs, including maintenance, insurance, taxes, and other fees, should not exceed a quarter of your income after taxes. The lower you spend on housing in proportion to your income, the better.

When it comes to mortgage loans, your total home expenses should not exceed 300 percent of your annual income. If your yearly salary is $100,000, you should not spend more than $300,000 on your home. This ensures that you will not end up paying your mortgage for 30 years or more.

3. Start saving for a downpayment

Even if your bank has prequalified you for a generous loan, you still need to save for a down payment. If not, you will have to pay for private mortgage insurance to protect the lender from a mortgage default. While some banks will allow you to pay as low as 5 percent of a mortgage, insist on a 20 percent down payment.

Homeownership can be incredibly exciting for many people, but it is easy to fall prey to predatory lenders and unsound financial practices. These three pointers will help you finance your home in a sensible and manageable way. Having a small home that you can afford is better than a big repossessed one.

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