How Do You Set Your House-Buying Budget? | RealtyPin.com
LOS ANGELES, Feb. 12, 2013 /PRNewswire-iReach/ -- Budget. It's a small word that has a big effect on the home you buy. Set the wrong budget, and you could end up missing out on the home of your dreams – or, worse, ending up with a home that you simply can't afford. The real estate pros at Realtypin.com give you advice to set your house-buying budget.
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- Don't go by your mortgage pre-qualification alone
A pre-qualification is just that – what you go through before you actually qualify for your mortgage. Until you and your lender sign on the dotted line, everything (including the specific dollar amount of your loan!) can change. So, just because the bank tells you you're pre-qualified for $200,000 doesn't necessarily mean that you can afford a $200,000 house. After going over more of your financial details, the bank may decide that you can only afford a $150,000 house.
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- Use the 2.5 rule
While there's no "magic" formula that can tell you exactly how expensive of a home you can afford, there is a good rule of thumb – the 2.5 rule. What it says is to take your annual salary and multiply it by 2.5. That's the price of the home you should be able to afford, without struggling.
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- Take your debts seriously
You may think that you have a handle on your student loans, your car payment, and your credit card bills – but how will all of those things stack up when you throw a monthly mortgage payment into the mix? After all, the home you buy isn't going to exist in a vacuum. It's going to be surrounded by all of your existing debts, so if you have a bunch of them, you're going to have to make your house-buying budget smaller. (In fact, if your debts are significant, you may not even be able to use the 2.5 rule!)
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- Don't forget about the "extras" that come with home ownership
You may think that paying a mortgage every month is no big deal. After all, you pay your rent with no problems! So, as long as you can save up enough for a down payment, you should be fine, right?
Maybe not. After all, there are a bunch of "extras" that homeowners have to pay for – like property taxes, homeowners' insurance, and homeowners' association fees. You'll also have to pay for all of your repairs, instead of simply making a phone call to your landlord. So, you've got to budget for all of them!
- Think about the long haul
Ultimately, buying a home is an investment. Instead of just pouncing on the first home that falls into your price range, think about the future. What kind of resale value can you expect years down the road? In order to answer this question, take a look at the neighborhood, the schools, and the crime rate. While none of them offer a crystal ball, they'll give you a good idea of what your investment will be worth!
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