Budgeting For A Home Loan
Buying a home is one of the largest investments people may make in their lifetime, so making sure you form a budget that lets you invest the right amount of money is a very important part of the process! Finding a home you can comfortably afford, by preparing a budget, will allow you room in your savings to have other investments without stretching your wallet too thin on your mortgage alone. Making the distinction in what you SHOULD borrow vs. what you COULD borrow is a great tool that will help you invest the right amount into your home.
The first step in making this distinction is to form a household budget in order to establish a loan that fits within it, rather than stretching your budget to fit your loan. This step will guarantee your future comfort in spending, rather than forcing you to cut back in other areas to afford a home that is more expensive.
Your household budget should take into account the following factors:
1. Your pre-tax income from your salary, investments and any other sources.
2. Your current debt for credit cards, car loans, student loans, etc.
3. Your regular monthly expenses for utilities, phone/mobile, insurances, and discretionary.
4. Your savings accounts, including any retirement.
Once you've set your household budget, the following steps will help you get started in establishing a loan amount that comfortably fits your budget:
1. Talk to a Mortgage Broker. Based on your earnings and your budget, they can give you options on an affordable loan.
2. Get Prequalified. It’s always important to have something tangible, to know your budget before you make an offer.
3. Understand the terms of your loan. Make sure you feel comfortable with the repayments required.
4. Stick to your budget! Even if you're qualified for a higher loan, be sure you're searching for a home that COMFORTABLY fits your budget! You want to be sure your monthly payments don't cause you to stretch your income too thin.
5. Think about your financial future. Can you still afford to make other investments and your monthly mortgage? The answer should be "YES" if you're buying in the right price range! We are all willing to make cut backs, but purchasing a home that forces you to cut back your savings, retirement or quality of life may mean the price range is too high. In an affordable home, according to your previously formed budget, you should still be able to continue saving and investing without any major changes to your every day lifestyle!
Once you've established what you COULD borrow versus what you SHOULD borrow, you'll be ready to begin your home search! With the help from your Mortgage Broker, along with your household budget, you're on your way to becoming a successful homeowner. Complying with your loan terms and sticking to your budget will guarantee a strong future of home ownership, continued investments and peace of mind because you've invested the right amount into your future!