Are you considering buying a new home but are unsure whether you can afford it? Many people are. Below a list of tips that will help you analyze your situation and decide what you need to do to get ready.
Analyze your debt
If you have any high interest debt, like credit card debt, it might be a wise idea to repay it before buying a home. When you buy a home, mortgage is not the only cost you will have – you will also be responsible for maintenance, repairs, property taxes, etc. Buying a house is expensive and if you must pay off an additional debt on top of it, this will likely set you back financially and this is not how you want to start your home-owning journey.
Check the state of your savings
It is a very good idea to have an emergency fund set aside when you’re looking into buying a home. Since you will now be responsible for much more than just your mortgage, having a few months’ worth of your living expenses set aside will give you that security cushion you need in case of emergency.
Are you saving for retirement?
Buying a house is not an excuse to stop saving for retirement. You should allocate 10 to 15% of your income for retirement. If you are able to do it and pay your mortgage, you might be on a good track to being ready to buy a home.
It’s a good rule of thumb to allocate not more than 30-35% of your budget for your house expenses. For example, if you make $2000, you should spend no more than $700 on your house, if you make $4000 – then your house budget should not exceed $1400 and so on.