7 keys to budgeting to buy a house
In this post I’ll lay out 7 things to keep in mind when budgeting to buy a house.
Your house is likely to be the largest purchase you ever make. Maybe you’ve been renting all this while (good for you!) or you’ve been living with your parents (also, good for you!) but you find its time to have your own place.
This is a huge step. My wife and I took this step about one year into marriage even while we were dealing with this debt load. Several years later we bought a house with a bit more space. Both transactions required a lot of planning and certainly were stress filled situation. Fortunately, it wasn’t financial stress but just the stress of making such a big decision.
One important thing to understand are the large transactions costs associated with buying or selling a house. There is so much time, energy and focus involved its not something you want to do frequently.
Budgeting to buy a house
I’ve taken a look at my experiences and done some research and have put together a list of 7 things to keep in mind when budgeting to buy a house. In no particular order, here they are.
Choose the right house budget
This may be the biggest decision you make. Its such a balancing act because you want to have a home you can live in for a while but you also don’t want to pay an arm and a leg for something.
My best advice is to plan on staying in the house for 8–10 years. I’ve went in detail on this topic here and here. This will require you to think into the future about what you may need. Honestly I’d think about garage parking, closet space, attic storage space, number of bedrooms, etc.
Really put some thought into this. If you are buying with a significant other make sure you guys compare notes about what you believe is important. Here is my best advice on how to do that. These conversations will certainly take you down the path of what size of family you’d like and where you’d like those kids to go to school.
I’m not going to attempt to put a number to how much house you should buy. There are way too many variables to consider. I will tell you that my most recent home purchase was about 1.5–1.7X our household income when we bought it.
Calculate your monthly mortgage
When budgeting to buy a house actually calculating your mortgage has to be a cornerstone. I’ve wrote extensively on things to take into account when putting together your calculations.
Unfortunately there are multiple numbers to take into account. The first is certainly the cost of the loan. The second is your homeowners insurance and the third big piece is and PMI.
If this is your first home you may be required to include your homeowners insurance bill in with your mortgage. Also, PMI stands for Private Mortgage Insurance. This is an extra cost that is added to your mortgage if you don’t put 20% down. You can read more about PMI here. Which brings me to my next point!
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