When you’re looking for a new home, it’s important for you to think about what you are both willing to and able to spend on a property. So, let’s have a look at how you can decide on your ideal house-buying budget.
How You Can Decide On Your House Buying Budget
Affordability definitely matters when you are looking at a new home. It’s likely that you want to get the best price possible, however, it’s important for you to know where to start. Looking at your own finances is a great starting point as it can help you to figure out what you can afford to purchase, what monthly payments will fit in with your monthly budget, and whether you are likely to get a mortgage application accepted.
If You Are A First Time Buyer
When you are thinking about buying your first home and how much you can afford, it will ultimately come down to:
Your Deposit Size
The larger your deposit that you save, the more options that open up to you. For most, a 10 to 15% deposit is normal, with some lenders seeing 20% as the ideal. Some of the government schemes that are available for first-time buyers, and some mortgage companies, will allow just a 5% deposit, however, there can be drawbacks. For example, you can usually only buy a new build property, and you still need to pay rent on a certain percentage of your home. And if you manage to find a mortgage that accepts a lower rate such as 5% the mortgage rates may not be as good as having a larger deposit.
You need to think about how big your deposit is, and are you able to add any more to it?
Are You A Safe Bet?
If you are getting a mortgage, you will need the bank or lender to see you as a safe bet. They will need to know that you are going to be able to pay the money back and that you are likely to stick to the agreed schedule.
If you have significant debts, it’s probably a good idea to clean these up first. A lender is less likely to give you a mortgage if you already have large commitments to pay a large sum of money back. Try to clear any debts before you even think about applying for a mortgage.
Your Credit Score
It is now really simple to check your credit score for free online and get to know how a lender will see you. Using tools such as Clearscore can help you to keep on top of your score and look at ways to improve it. The higher your score, the better chance you have of securing a good mortgage deal.
Owning Money On Finance
If you have a fair few items on finance, such as a car, sofa, or catalogs, it may be seen as another form of debt. It’s a good idea to think about paying off as many financed items as you can before you apply for a mortgage.
What Can You Afford Per Month?
It’s not just as simple as looking at your deposit then applying for a mortgage. You need to also think about affordability. This is what an underwriter at the mortgage company will look at too. A monthly mortgage calculator can often be useful when trying to figure this out.
Have You Got A Home To Sell?
If you have a home to sell, then you will likely need to sell this before you can purchase another. Your budget is going to rely both on your income and how much equity there is in your existing home. If you have managed to pay quite a bit off of your home, you will have access to more money when it comes to purchasing a new home. For example, if you have a home that is worth £300,000 and you have already paid off £100, 000 that that equity can be added to or used in place of your deposit. The rest of the money from the house sale will go towards paying off the remainder of the mortgage. You may find yourself in a situation where you are now able to buy a property that is worth more as you now have a much larger deposit.
You do need ot bear in mind that the price you receive for your home is going to depend on the current market, and you may not get the asking price that you want.
Where Are You Going To Buy?
If you have a particular location or area in mind, then that will likely impact the budget. You need to work out your budget using some of the tips above and then see if the properties in the area you would likey match with your ideal budget.
If they don’t match then you may need to think about making a few compromises. YOu could make changes to your location, the type of property, wait o buy for a little longer to grow your deposit, ot try to increase your income.
Compromising On Location
If the area that you are looking at isn’t within your budget, you need to expand your search area or consider moving away from the amenities a little. Often homes that are near to the amenities like local transport can cost more, however, if you don’t need this you could get a lower priced just a little further out. It may surprise you how much of a difference it makes to widen your search just a few miles.
You may also find that these new locations are actually a better choice for you, especially when it comes to privacy and space.
Compromising On The Property Type
If you are dead set on a certain area, perhaps for your commute, family commitments, or school catchments, then you may need to think about adapting the type of property that you are looking for instead of the area. Downsizing the garden or looking at a flat could be a cheaper option.
You could also have a look at properties that need a little bit of work. Although, you may want to consider the amount of work you are willing to but in and how much it is likely to cost. You need to think about the potential you see with the property that you are buying. Would it be possible to turn a property that isn’t what you want right now but is cheaper into the home you do want in the future? For example, extending it to give you a larger kitchen or an extra bedroom.
Other Costs That You May Forget
Your deposit and monthly payments aren’t the only costs you need to think about when you are buying a home. You also need to think about:
- The costs of any agents
- Any legal costs such as stamp duty or solicitor fees
- Conveyancing fees
- Arranging a house survey
Working Out Your Complete Budget
When considering your budget you need to think about all the costs that are associate with the move, how much you can afford to borrow, the size of your deposit, and what you want to get for your money. Looking on property websites, using online tools, and keeping track of your monthly budget are all good ways to get yourself prepared for buying a house.
This guide should help you to decide on your ideal house-buying budget. Are you looking for a new home? What considerations are you making? Please share some of them in the comments below.