Budgeting for a New House
Purchasing a house is a huge investment in anybody’s life no matter if you’re a first-time home buyer, looking for a new home, or still planning out your dream home wish list. It can be an overwhelming process that can leave you wondering where you should start. Ideally, your journey should begin with building your knowledge base and understanding how to build your new home budget. Here are some tips to kickstart your house-hunting adventure.
What You Need to Know
- Pre-approval. Applying and obtaining pre-approval for a mortgage loan is going to be the first and most important step. Pre-qualifying and pre-approval are two different concepts. Pre-qualification simply means that you could qualify for approval of a loan, whereas pre-approval formally evaluates and determines whether or not you will receive a loan and for what amount. Obtaining pre-approval will give you an advantage in a bidding war. For example, you find your dream house and want to make an offer. There are already multiple offers on the house, but you know that you are one of the two potential buyers who are pre-approved. Your pre-approval should trump a potential buyer who only has pre-qualifications or does not have either. This is because sellers view pre-approval as a higher chance for closing conversion and becomes a better negotiation tool for you in the bidding. However, keep in mind that pre-approval does not guarantee the amount for which you’re approved in your formal letter.
- Must Have vs. Nice to Have. There are countless factors that go into the process of looking at potential homes. Establishing a “must have” list and a “nice to have” list can help narrow down the market. When looking at potential homes and developing your two lists, keep in mind your future. For example, do you want children (or more children if you already have them)? Do you have any pets? Are you planning to remodel? It’s also important to remember that this home should be one you can see yourself residing in for an extended period of time.
- Explore the market. Choosing that dream house can also include that picture-perfect neighborhood. But how much will it cost you? It’s important to explore the market to see what the average house that meets your requirements costs. This will help you gauge what you can afford – or need to save more for – and tailoring what is truly essential to your new home and what is not necessary. For example, perhaps you want a pool, but you can’t afford the upfront cost. Choose a home that has room for a pool that you can safe for and add later. Or maybe choose a house in a neighborhood with a community pool. In this scenario you’ll save long-term by avoiding regular maintenance costs, also!
- Inspect the house carefully. Most people believe that compromising on the price of a home inspection before purchase is acceptable. In rare cases, it could be. However, after a professional home inspection, underlying issues or conditions showing the home’s age could give insight into potentially hefty fixes in the future. For example, examine the condition of appliances; look for and ask about any water, mold, asbestos, etc. problems and the extent of damages, if applicable; evaluate the condition of the foundation and electrical issues; and ensure the home and all renovations are up to code, specifically if renovations have been made. All of these issues can add up quickly. While you might enjoy or entertain the idea of a fixer upper, you don’t want your new home to become an endless money pit.
How to Build a Budget
Before building budget, clear any problems or potential problems that exist. These issues might include rebuilding credit, paying off student loans, and any other potential financial issues that may arise.
Most first-time home buyers do not know or do not take into consideration expenses outside of the mortgage. It is vital to remember other expenses that factor into your budget, such as home inspections, closing costs, home insurance, taxes, HOAs, moving fees, and other fess that may arise in the process.
Once you’ve established your pre-approval rate, the price range for your new home, and any other factors that could contribute to your home expenses, you can begin building a budget. Most times, management of lifestyle choices is a highly influential part of budgets. Cutting down on your personal/discretionary budget and focusing on essentials and savings budgets are the most straightforward and efficient ways to start saving. For example, asking yourself questions regarding where you can save can facilitate proactive, cause-and-effect thinking. How often do I eat out? Is what I’m buying necessary to my wellbeing and daily functioning? Are there ways I can save money on my essentials? How much can I afford to pocket into savings without limiting my social life?
EmployeeMoney is your biggest advocate for your new home adventure! If emergencies or unexpected expenses arise, contact EmployeeMoney today to help stay on track and achieve your new home dreams.