Key Budget Considerations When You’re Thinking About a Property Purchase
Find out about some great ways to budget effectively, and some important considerations to make when you’re thinking about buying a new home.
There is a long list of things that you need to know about before you look into buying a new home. A property purchase is a real education in nit only budgeting but also legal affairs. And that’s all on top of the personal and emotional upheaval it can bring – hopefully in a good way!
One of the first things that you should be doing is estimating whether or not you can truly afford to do it. Moving home is one of the most expensive things you can ever do in life and is a long term financial commitment. So any decision should not be taken without serious thought.
To help you understand if you are financially ready for this big step, and to give you some handy budgeting tips, here are some useful steps to help you make sure you’re ready for this life changing decision:
What Kind Of Property Can You Afford?
Rather than starting to look at what is out there on the market first, you need to know what you can reasonably afford without stretching your finances to breaking point.
Most households spend about 30% of their total income on the cost of housing. Some people on high incomes spend even more than this 30% average. Even those on low incomes may stretch themselves financially if they really want to own a particular property and can secure the mortgage or home loan they need.
To determine how that proportion of income reflects in your total budget, sit down and work out the incomings your household receives on a monthly basis. Then multiply that by the percentage you want to spend on housing. This amount will include figures like the mortgage, estate agent costs, legal fees, ongoing insurance, maintenance and potential leasing costs too, such as ground rents or maintenance charges. When doing these sorts of calculations always over-estimate the costs because moving to a new home will rarely work out cheaper than you were expecting.
Extra Costs, What Are They?
When it comes to buying a property, the costs don’t only come down to what you will be spending each month to pay off the home loan and to maintain the property.
There can be additional costs to consider with certain properties, especially if they are old homes with ongoing maintenance costs. Properties might need a new kitchen, or a new bathroom. Even decorating can be surprisingly expensive. Small properties with no garage and limited storage may require you to rent a self-storage unit or a garage – costs that will have to be factored in each month. Properties that are further out of the city might cost you more to then commute in to work. Owning a home is never just about the purchase cost they are listed at in the estate agent’s window or the online property portal.
Are There Expenses You Can Cut Down On?
There are lots of ways that you can save money and increase your monthly available funds. Maybe you could eat out at a restaurant less often? Maybe you buy fewer new clothes? Perhaps you could even consider sacrificing this year‘s big family holiday? You could even consider living with your parents (rent-free hopefully) and using a personal self storage unit for your things whilst you save some extra cash. Understanding the bigger picture and the long term benefits of making even minor temporary sacrifices is important if you have set your heart on owning your own home.
Get Up Close And Personal With Your Finances
Becoming comfortable with your spending habits and financial situation is important for every home owner. It helps you to understand where you are now, and where you could be in the months and years to come. But you have to be honest with yourself so that you know where you could save money and improve upon managing your finances; but also what you would be prepared to sacrifice to achieve the home of your dreams.
For some a certain type of home is more important than for others. Some people want space and light, others merely want to be comfortable and cosy. So think hard about what is important to you personally – whatever you do don’t buy a home that is the “sensible option” – allow your heart to rule your head – just a little bit. Understanding your expenses and how they work is really important and that involves a certain amount of self reflection – but being happy in your new home is also important. Strive for the right balance and you should be able to find a home you love, that you can also afford.
Improve Your Credit Score
Lenders will want to see that you are reliable and able to pay back mortgage payments. So you will want to be paying your bills on time ensuring that those payments are being kept on top of, and ensuring that you don’t have several credit accounts. If you’ve never checked your credit now is the time to do so.
House Prices Where You Want To Live
It’s a really good idea to understand the general price range in the area that you want to move. It’s one thing knowing what your budget is and then finding out it’s about £20K more for anything in the area that you want to move to. Knowing this now means that you can then choose to save more until you can move to the area that you like. Or you can start looking in a different area.
Knowledge is key when it comes to making the best possible decisions moving forward.
The tips above are designed to help you give a little bit more thought to your financial situation before you make the huge commitment of purchasing a property. The key is being honest with yourself and understanding exactly what you need to do to get where you want to go. There’s always a way and it starts with knowledge.