How To Budget for Buying Your Dream Home This SpringInsights Cash Flow Goal Setting
Are you the type to scroll through real estate listings and daydream about what your life could look like in the different homes? Do you see a fixer-upper, and your mind starts to spin with ideas on how to make it perfect for you and your family?
Buying a home is a goal for many adults, but with an ever-changing housing market, rising interest rates, and seemingly insufficient housing, the task can be daunting.
Today we’re sharing tips for budgeting to buy your dream home this spring.
- It’s important not to forget about the costs that come up after you get the keys. You don’t want to get caught in your home without a bed, vacuum, or washing machine!
- Don’t get caught up in feeling like you must only cut high costs to budget for your home. Small things like making more meals at home can also add up over time.
- Starting the home-buying process knowing your ideal neighborhood, type of home, etc. Being prepared can help you secure your dream home.
What Type of Buyer Are You?
Are you a first-time buyer or home buying veteran? Surprisingly, what kind of buyer you are can impact the home-buying process.
Did you know that different lending options and programs are available to first-time buyers? They can include benefits like low-down-payment mortgages, no-down payment mortgages, mortgage loans with discounted interest rates, loans with lenient approval standards, etc.
In addition to these programs, first-time home buyer grants are available at the federal, state, and local levels. There are many popular home-buyer grants, and if you’re interested in learning more, you can visit this website.
If this isn’t your first home, there are things you need to consider before you start searching. Do you have equity in your home? Is it worth more than when you bought it? Are you in a desirable neighborhood or school district? You want to keep these things in mind when deciding on your budget.
Avoid Being “House Broke”
The type of situation you want to avoid is buying a home that is well beyond your means. This issue is because if your discretionary income goes to home repairs or mortgage payments, you need something to put toward your other financial goals.
So, how do you avoid this? A good rule of thumb is using the 28% rule. This rule says your mortgage shouldn’t be more than 28% of your monthly gross income.
That might not seem like much but don’t forget that you likely have other expenses or debts like car payments, student loan payments, etc., that you also need to put monthly income towards. Or, if you find yourself in a situation where you need to access cash quickly, you might not be able to if it’s all tied up in your home.
Mortgage lenders will look at your debt-to-income ratio when determining whether or not you’ll be approved for a loan, but don’t make the mistake of buying a home that’s too expensive.
Remember the “Hidden” Expenses
Congratulations if you’ve found your dream home, gone through the mortgage process, and finally got the keys! But, now what?
Some sneaky expenses aren’t always top of mind when purchasing a home, so don’t forget to budget for these items, too!
- Home Insurance
- Closing costs
- Moving expenses
- Renovation Costs
- Home Furnishings
- Cleaning supplies
- Appliances or appliance repair
- Home security system and fees
- Home emergency fund
Sure, you could live using lawn chairs instead of a couch for a while, but don’t let these expenses sneak up on you.
This is especially important regarding a home emergency fund. Even with a house inspection, you never know what could happen with your new home. A new water heater, roof, or appliance can be an expensive emergency if you’re not ready.
Choosing the Right Home
This is the fun part! It’s time to brainstorm what type of home you like and what neighborhood you’re looking for and create your wish list.
Your wish list can be as extensive as you want it to be. For example, a fenced-in yard might be on your wish list if you have a dog. Or, if you’re in an urban area, walkability to restaurants could be vital to you. Whatever it is, write it down!
A wish list can get out of hand quickly. For example, you might want an in-ground pool, but is that a “need” on your wish list? Or, maybe you can’t get precisely into the neighborhood you’re hoping for, but otherwise, the house has everything you need. Is the neighborhood truly make or break?
In addition, think about the longevity of your home. Is this the home you’ll be in for the next 30 years? If so, is it accessible when you get older? Or do you need to budget for future improvements or renovations?
St. Petersburg Area Homebuyer Considerations
If you’re specifically looking for a home in the St. Petersburg area, there are a few specific things you should keep in mind.
- Current Real Estate Climate: Generally, there is a low number of homes available for purchase at a given time. That being said, homes can garner a variety of offers, quickly. This emphasizes the importance of doing your homework and being prepared once you begin the home-buying process.
- Choosing Your Desired Area: The St. Petersburg area provides a variety of neighborhood options for you to choose from. Are you looking for entertainment and easy access to downtown shops and restaurants? If you have the budget Historic Kenwood, Old Northeast, Snell Isle, or a downtown condo can be a great fit. If you want something with quick access to the beach, Pasadena, Terirra Verde, or Gulfport. If you want a little of everything, try more centrally located neighborhoods like Crescent Lake, and Allendale.
- Weather: While the sun and sand are beautiful and desirable, Florida can be subject to intense storms like hurricanes. So, depending on where you choose to live, it may be smart to increase your homeowner's insurance rates, or, choose a home based on its ability to withstand severe weather. And, make sure you choose a home with good air conditioning!
The many things to consider about your “right” home can be daunting, but remember what’s truly important to you. After all, you should love the home you’re in!
Creating Your Spending Plan
Once you know the amount you need to save for your home, it’s time to create your spending plan.
First, add up all of your income sources in your bank account each month. For example, your and your partner’s paycheck, bonuses, commissions, etc.
Then, list your monthly expenses like utility payments, groceries, transportation, car payments, health insurance premiums, clothing, recreational use, etc.
Now, separate that list into what monthly expenses are non-negotiable. This will likely be your utility, groceries, medical, etc.
This is where you have to identify areas that you can cut. For example, it might mean eating at restaurants less or not buying new spring clothing. While cutting these costs may not seem like much at first, it will add overtime and help you save money.
Don’t Be Afraid to Ask for Home-buying Help
If you’re just starting your home-buying journey, are stuck on saving money, or have questions about mortgages, interest rates, etc., a financial advisor could be an excellent resource.
Please reach out to us today if you have any questions about how you can buy your dream home. We can’t wait to work with you!