How to Determine Your Limit When Shopping for a Home
Tuesday, March 11, 2014, 1:00 AM | Leave Comment
Purchasing a new home is a fascinating idea for many people. Acquiring a new residence will be one of the biggest decisions you will make in your life.
It is imperative that you keep a few things in mind when it comes to shopping for a home. For example, it is important that you learn how to determine your financial limit when looking for a new home.
Knowing your limit can help you avoid overextending your finances. Overextending your finances can put you in a deep debt.
Let’s take a close look at five tips that can help you purchase a home that is ideal for your personal budget.
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Credit Score
What is your credit score? Your credit score will determine your mortgage terms. Individuals with average beacon scores are generally approved for mortgages with a higher interest rate.
A tri-merger will allow you to see your credit score. A tri-merger is the process of getting your credit report from Experian, Trans Union, and Equifax. You should work with a credit repair specialist if you have a few blemishes on your credit file.
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Lifestyle
A lavish lifestyle is one of the biggest reasons why many people default on their home mortgage. Shopping sprees and purchasing expensive gifts can put a dent into your budget.
You must keep your lifestyle in mind when it comes to looking for a new home. Your lifestyle should not hinder you from making your mortgage payment on time.
If you want to be able to use more of your money on clothing and expensive electronics, factor that into your budget before choosing a home that you will struggle to make payments on.
For example, your income may get your approved for a luxury home in The Crosby neighborhood of Rancho Santa Fe, but if you don’t budget your money wisely, you could still end up behind on payments. Prioritize your wants and needs and set a strict budget.
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Generous Approvals
Generous approvals take place when banks and mortgage companies overextend loan amounts to borrowers. A generous approval can place you beyond your financial means.
You must also contend with homeowner’s insurance payments and many other miscellaneous costs. You should only borrow an amount that can be repaid comfortably.
Don’t look for a home at the highest amount you are approved for. Just because you are approved for it, doesn’t mean you can actually afford it. Look at your current bills, rent, how much you have in savings and how much you would be able to put into a mortgage each month.
Remember that if your budget allows for purchasing luxury real estate, you’ll need to make sure you can also afford higher insurance and HOA fees.
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Bills
Accessing your present bills will allow you to calculate your reserve capital. Please keep in mind that your bills will change once you move into your new home. Owning a home will lead to more bills.
For example, if you move from a small apartment building to a single family home you need to think about the cost of heating and cooling, lawn maintenance, HOA and insurance.
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Down Payment
You will be required to make a down payment on your home. Do you have enough money in reserve for a down payment? A down payment assistance program can help if you do not have a significant cash reserve in place.
Your down payment can help you choose a home that will fit in your price range.
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Debt to Income Ratio
Debt to Income Ratio is a mathematical formula that can determine how much you can spend on a home. A mortgage calculator can help you determine your debt to income ratio.
Buying a new home can send a feeling of excitement down anyone’s body. One must determine his or her limit when it comes to shopping for a home. The tips listed above can help you determine a realistic price for purchasing a home.
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