Are you planning to buy a new house? If so, do you have enough money to make a down payment? What about your ability to take out a loan? This guide will discuss these things and more.
Buying your first house is a rewarding milestone, no matter where you are in life. If you’re looking for house and land packages for sale in Melbourne West and nearby areas, it’s best to ready your finances as early as you can. Even if you aren’t planning to buy a house yet, at least not for a few more years, saving up early can expand your options in the future.
If you don’t know where to start, here are some tips that can help you:
1. Set your budget
Setting a budget can give you a goal to work towards. Before you start saving up, determine how much you need to save. To do that, compute for your total mortgage amount. Borrowers should set the cap of their monthly housing expense at 28% of their monthly income. So, if you’re making $5,000 every month, you can set aside $1,400 for your mortgage. With a 4.5 interest, you can take out a mortgage of around $177,500.
Next, put a 20% down payment on top to know how much of a house you can afford. Twenty percent is not required, but it will definitely make your future payments lower. In the previous example, a 20% down payment will be around $44,000. If you get a mortgage loan, you can afford a house that is valued at about $220,000. This means you would need to save $45,000 to make a substantial down payment on a new house.
2. Plan a saving schedule
Determine how much time it will take to save up for your down payment. If you can set aside $9,000 per year or $750 a month, you can afford your home in five years. If you can save up that amount in a shorter period, the better, as property prices may increase as time goes by. Try treating your savings as an actual mortgage so that you feel compelled to set aside money every month.
3. Build a good credit
Mortgage lenders will give you better interest rates if you have good credit since you have proven that you are capable of paying off loans. If your credit score is low or so-so, start building it up early on. To achieve this, stay on a strict budget every month. Use cash as much as possible to avoid swiping your credit card. And most importantly, pay off loans and credit card bills on time.
4. Stay on a budget
In lieu of building good credit, you should stick to a monthly budget so that you don’t spend your down payment fund if you go overboard. Create a budget plan that will cover all of your basic needs (food, bills, clothes, insurance, etc.) and make an effort to stick to it. Remember that you have a goal to achieve, and sticking to your budget will help you reach it faster.
Buying a new house requires financial readiness and discipline. The down payment itself is a big obstacle, but by following these tips, you can buy your dream home in no time.