It is of utmost importance to really understand the financial implications of buying a house to live in, on mortgage, will have on other aspects of your life.
While there are a lot of arguments that state that buying a home on mortgage at a young age is the single biggest mistake one can make, not buying also potentially be the single biggest mistake you can make. Why? Because, buying home increases your probability of wealth accumulation, since you really are not in the wealth building game until you actually own some real estate. Therefore, take some time and crunch some numbers – you don’t have to start big. This way, you will have your own clear goals and you will not later tell yourself that you cannot afford it.
Buying a home is a very tiring and complicated process
A few things you must do:
Buy What You Like
For many, the budget is something that cannot afford you many choices. However, while you are at it, buy a house that you actually like and in the location that you would actually like to live in. As, what you definitely should not and absolutely not compromise on is the quality of life. Therefore, make a list of the things you would like the house to definitely have and things, you would compromise on i.e. size, locality, floor plan, building materials etc. All these things will definitely impact on the cost of the house and also, look out for good bargains.
Mortgage Installment 40% of Income
The debt-to-income ratio is said to be 43%, therefore, 40% is a good allowance for which your monthly instalment should not exceed 40% your total income. While this maybe the rule of thumb for many, you should also consider what you are actually comfortable with i.e. keep your options open by accounting for higher monthly instalments if rates rise or accounting for shorter mortgage terms in the future. Since, mortgage commitments are usually long-term it can be hard to predict what will happen in the interim hence, it is important to keep your commitments lower than 40% of your monthly income.
Opt for Floating Interest Rates
After the interest rate cap, many borrowers have lost out in their fixed mortgage rate loans and hence, have a variable rate on interest which will keep you within the range of competitive rates in the market.
Credit Score & Mortgage Eligibility
Before taking the step to buy a home, check your eligibility with the bank. This depends on your credit score, occupation, income, value of property you would like to acquire and the number of dependants you have. Other things may be considered as well.
Seek Legal Advice
Despite that fact that bringing in a lawyer to this process may cost you a lot more, it will save you a lot in the long run. Make sure you have clean title deeds and the required supporting documents that will protect you against future litigation.
6 Months Emergency Budget (Monthly Installments)
Uncertainty is the only certain thing; therefore it would not hurt to keep some cash in handy to meet your monthly payments when things aren’t looking up. Additionally, take insurance on your loan as you take out your mortgage. This will ensure that in the event of your timely death, the liability is taken care of and your loves too.
A few things to avoid:
- Do not take a loan for down payment or process fees – personal loans are very costly.
- Do not stretch your budget too much – The cost of living increases and therefore, stretching your budgeting and committing a great percentage of it to something like this will leave you in a serious conundrum.
- Do not work with inexperienced professional – spare yourself some drama.
- Do not let yourself feel the pressure – your making a decision that you’ll have to live with for a long time.
- Do not forget to provide for furnishing expenses – just put some funds aside for this!
- Do NOT let it be your ONLY investment – The biggest lesson and the biggest mistake you can make – ensure you home is not your only asset. Build some other investments aside from your home.
Finally, do not fall prey to schemes that look too unrealistic. If a deal is too good to be true – it probably is untrue. Therefore, keep an eye out for the signs such as terms of costs, timelines promised – anything that seems out of place or too perfect.
You can read more on real estate investing by following the links below:
- Ways to Turn Single-Family Homes Into a Cash Cow
- 7 Common Mistakes to Real Estate Investing to Avoid
- Top 5 Ways To Begin Investing In Real Estate
And Good luck!
