How to Make a Budget for a New Home

How to Make a Budget for a New Home
By [http://ezinearticles.com/?expert=Abishek_Kumar]Abishek Kumar

So, you've landed a well-paying, stable job, and you're beginning to get your finances in order. You've decided that it's time you invest in some property, and you begin to look for homes that you can afford to buy. However, before you start looking at houses and taking out loans from the bank, you need to ask yourself exactly what kind of property you can afford. Create a reasonable budget, and stick to it. Over-stretching the budget and purchasing a house you can't really afford is going to cause you a fair amount of financial problems, and it is best to avoid such situations.

This article will give you a fair idea of how to draw a suitable budget and will enable you to estimate a ballpark figure before investing in a new home.

1) Start Off Conservatively

Place a cap on your budget from the initial stages itself. Establish a range. What's the maximum amount you're willing to pay for a house? Make sure that the house you finally choose falls within this pre-established range of affordability.

2) Make a Wish List

Come up with a list identifying what exactly you're looking for in a house, and the locality in which it is situated in. Ask yourself what is absolutely essential, and what you can make do without. Get a basic idea of the neighborhood and the standard of living in that area, and ask yourself whether it suits your personality and way of life.

3) Prioritize The Features

After compiling the list of home and locality features that you think are relevant, prioritize them according to importance. This will allow you to eliminate one or the other, if necessary, after you have drawn your budget.

4) Jot Down Your Finances

Ask yourself the following questions: Do I have enough cash for the down payment? How much will the closing cost of the house be? Figuring out the answers to these questions can help you decide what kind of loan you should take. Typically, down payments range from 5% to 20% of a home's cost price.

5) Figure Out Your Mortgage

Do some math and figure out your mortgage. The standard rule for monthly mortgage payments is that it should be between 25% to 33% of your monthly gross income. I recommend you follow the 20/28/36 rule which suggests that you:

a) Make a down payment of 20%

b) No more than 28% of your Gross Annual Income should go to mortgage, insurance, homeowner's fees, and real estate taxes.

c) No more than 36% of your Gross Annual Income should go to mortgage, home expenses, and other debt expenses such as credit card debt, car loans, and educational loans.

Note that you must calculate your mortgage affordability with the help of a mortgage calculator or a home affordability calculator. This will help you in estimating your budget..

6) Get Qualified For A Loan

Review your finances with a professional, and establish whether the house of your choice is feasible or not, and whether it falls within your budget. This will give you a fair idea of your standing as a home buyer in the current market.

7) Start Searching For Suitable Houses

Now that you've finished creating your wish list, you've done the math and created your budget, and you've spoken to banks about feasibility and prospective loans, visit the neighborhood of your choice and look for houses that cater to your requirements. See whether the neighborhood and houses you had in mind fit your budget.

8) Make Tradeoffs

After you have scoured the neighborhood and visited a number of houses, go back to your list and strike off the features that you think you can live without. Solidify the things that are important to you, and identify the features that you cannot compromise on. This will help make your search for the perfect house a little easier.

9) Find A Trustworthy Broker

Find a good and trustworthy real estate agent who will help you find houses according to your budget. Insist on sticking to the budget you've drawn up. Let him review your accounts, income, preferences, and needs, as this will give him a clear idea of what kind of house you're looking for, and what will best suit you.

I am an avid writer, whose focus is more towards highlighting civic issues our society faces on a daily basis. I provide tips on property investment, write on real estate market price trends in India, and provide an insight on the latest residential projects. For more property related queries, you can visit http://www.commonfloor.com

Article Source: [http://EzineArticles.com/?How-to-Make-a-Budget-for-a-New-Home&id=8706468] How to Make a Budget for a New Home