If you’re planning on buying a house, it’s critical to determine a realistic budget before shopping. Contrary to popular belief, the money you saved for a down payment will have little impact on how much you can afford. For example, if you want to put 20% down, and you’ve saved $100,000, it doesn't necessarily mean you should be looking at properties in the $500,000 range. Here are some important factors to consider when budgeting for what may be the biggest purchase of your life.
Monthly Earnings & Expenses
Although everyone’s situation is different, it’s ill-advised to spend more than 30% of your income on housing, which includes mortgage payments, taxes, and utilities. For example, if you earn about $4,000 per month after taxes, you shouldn’t spend more than $1,200 on housing.
These figures will differ if you have significant credit card debt, student loans, or other major financial obligations. However, the numbers provide a starting point for estimating how much you can afford to put toward a monthly mortgage.
Expectations & Additional Resources
If you’re planning on buying a house that’s move-in ready, it’ll likely cost more than a fixer-upper. As long as you have the liquid cash to make the necessary renovations, purchasing a property that needs a little work has its advantages. Buying a home that needs renovations allows you to customize the property and could yield a larger return if you choose to sell it.
You should only purchase a fixer-upper if you have the resources and patience to perform the work. After calculating your monthly income, which determines how much you can put toward the mortgage, review the rest of your finances. For example, if you have a sizable investment account and want to put some of it toward renovations, keep that in mind when shopping around.
If you’re planning on buying a house on Oahu, turn to the local real estate team at AYO & Associates in Honolulu, HI. This agency is familiar with Oahu’s neighborhoods and will find you a dream home that fits your budget, needs, and lifestyle. These professionals also assist sellers, and they’ll assist with staging and listing a property to ensure you receive top dollar. Learn more about their first-time homebuying process online, or call (808) 927-3190 to schedule an appointment with an agent.