Buying a house is a big deal, since this is probably the biggest purchase you will make in your life. There a number of costs to keep in mind other than the price of the house. There is the deposit, the upfront costs, the ongoing costs, and the interest rate which is why it’s important that you establish your home buying budget so you don’t get yourself into bad debt.
A budget can help you lay out a plan for how to buy your first home. If you’re looking to buy a house and can’t figure out how much is the right amount for you, just consider these factors that can help in determining your home buying budget.
Monthly income and expenses
Budgeting always starts by determining your income and expenses first. Income includes your monthly gross income from your primary job and other sources of income such as from bonuses or any side hustle. If you have a spouse you will likely need to add his/her income as well.
Next is determining your monthly expenditures such as your utility bills, groceries, transportation, clothes, school fees, travel and other repayments. Don’t include your current rent since you are planning on purchasing a home. After you have the data, subtract your total income from your expenses. The result is a broad indication of what you could afford to spend each month on a home loan.
You may know how much you can afford in monthly mortgage repayments. It’s also important to get an idea of your borrowing power. This will vary from lender to lender, but usually they will measure your borrowing capacity based on your salary, credit score and financial commitments. You can use our borrowing power calculator to find out how much you could potentially borrow.
The results from the calculator will be based on the numbers you input. This will include your home loan amount, your loan details, your income before tax, and expenses. Take note that the result is only a rough estimate of your actual borrowing capacity.
How to improve your budget for buying a house
If you find that your borrowing capacity is low or if you’re budget won’t fit your dream home, it’s still possible to improve your home buying budget. You can start by cutting out unnecessary expenses to boost your house deposit savings.
Clearing yourself from debt, or consolidating debts into one easy repayment can help. Lastly, increasing your credit score by paying bills on time and reducing new debts can also boost your borrowing capacity.
Buying and owning a house will cost money. Make sure that you establish and develop your budget for a successful journey to homeownership.