Money Managment: Can you afford your home?

Now is a topic no one really likes and its called mortgages. In this whole process of house hunting I actually had to sit down and ask myself the question of "What can I afford?" and honestly answer it. I had to sit down with my pay stubs and really look at how I make each month and then take a look at my receipts and see how much money I am spending each month on top of my normal bills. Maybe I can shed some light and help you figure out if you can afford your home or not.

 

Step 1: Figure out Net Income.

When I say net income I don't mean how much money you bring in each month, I'm talking about how much money you have left each month after all of your bills are paid and food has been on your table. use this net income to determine how much you can afford but don't stretch it. I would leave anywhere from $300-400 each month just for spare. You still have to pay taxes, insurance, and utilities on your home and have some extra money to save for things like home improvements and unexpected expenses. 

Step 2: Calculate

Use the net income from above to calculate how much house you can afford. There are a plethora of websites with these type of mortgage calculators and will ask you questions like your net income, the current interest rate of banks, the term of the loan, and other house-ish stuff. One of my favorite calculators to use is http://www.amortization-calc.com/ and it has all sorts of tools on it to help you figure out a budget. Be honest with yourself when calculating and figuring this part out.  

Step 3: Do you have a down payment?

Typically this is the big one for most people. They don't have 20% of the price of a home saved up so they end up paying something called private mortgage insurance which is yet ANOTHER expense to buying a home. The down payment is important because it establishes instant equity in your home while lowering those monthly payments which, by the way, are mostly interest ( look at a amortization schedule).

Step 4: Prioritize

Do you really NEED granite counter tops or stainless steel appliances? Do you really NEED a walk-in closet and a double vanity? Not all houses are going to have all the qualities you want especially when you are on a budget. But you know what? This leave so much room for investment into your property which will hopefully appreciate the value of your home when you go to sell it. These cosmetic fixes are a great way to add value to your home (and fun projects- craft posts coming up soon) so try not to look at them in a bad light because where there is room for improvement there is room for investment. Just be clear that you aren't mixing up wants and needs because it can cost you a pretty penny if you do (that you can't afford). 

Step 5: READ

As of right now, I'm literally reading every piece of real estate advice I can get and I have no shame about it whatsoever. Why? Because buying a house is a large purchase and everyone needs to be doing their due diligence as to what they are getting themselves into. Information is money and lack of information is costly in some cases. So make sure you are educated about what you are getting into and if you don't understand go and talk with your loan officer or realtor and they can and will HELP you. 

These 5 steps are important when deciding how much you  can spend on your new crib. Houses are generally great investments but you really need to understand all the facts and numbers before you dive in head first because you're playing with a lot of money when you talk houses. But the good news is, is that there are so many people out there to help you make a good decision and friends and family are not exception. Let people share their failures and successes with you in hopes that one day you can do the same for someone else.

Love always,

Tinsel & Tulle