Are you a hopeful, would-be homeowner who is hesitant to commit to the big responsibility of a first mortgage? If your experience of debt has been limited to credit cards, car payments and student loans, committing to that first mortgage can be daunting. But very few of us will ever be able to pay for our first property with cold hard cash.
With careful planning and firm resolve, there are ways to lessen the weight and make that move into homeownership relatively stress-free. Two strategies that personal finance experts regularly advise can ease the burden.
Start Cheap when choosing a home.
Let’s start with the space you need versus the space you want. You are buying a home, not a mortgage. You have to align your baseline with your beliefs and goals before your start the house hunt. Having decided on a figure, stick to the guiding principles that led you to make that choice.
Structure your property search. Everyone and everything will conspire to get you the biggest and fanciest place your preapproval will allow. Your family and friends want you to have a “nice” home. Your agent wants you to be supremely happy with your new purchase and will lead you to the best properties on their listings. But stick to your guns.
If you want to succeed, don’t start looking at homes at the high end of your preapproval. The higher priced places usually come with more space and high-end finishes. A pricier place will look good, be more spacious and will make the lower end properties pale in comparison.
Instead, start your house hunt at the bottom of the price scale – check out the properties at the lowest point and see if any could fit your needs. If nothing suits your situation, start moving up the market slowly until you find the property that offers you the best bang for the buck.
The sticker price isn’t the only thing you’ll be paying for once the deal is done. You pay for the more expensive option when you buy and you’ll keep paying even after you’ve moved in. Some of the ongoing expenses you may face work out like this.
- Pricier property equals higher property taxes
- Pricier properties have costlier homeowners insurance
- More yard means more upkeep
- Bigger house means higher utility bills
Start with the cheap homes, then tiptoe up from there. With a lower first mortgage, you’ll be able enjoy your new home with a lot less stress.
The golden rule
The maximum amount of your debt payments should never exceed 40% of your take-home pay.
Here’s how it works. Add up your monthly payments for any debt you carry (credit cards, car financing, etc.).Take that figure and add to it the monthly mortgage payment for a 15-year mortgage. If the total is more than 40% of your monthly take-home pay, you are skating on thin financial ice.
This is sometimes called the golden rule for financial sanity. Keep your debt payments below 40% of your take home pay. If you can’t get the house you want and do that, then you’ll need to accumulate more savings or find a cheaper property.
If you ignore this rule, you could find yourself on a dangerous financial tightrope and you should think again before buying that home. Keep that first mortgage below the 40% threshold and avoid a fiscal noose.
Stick to these two principles when buying your new home, avoid unnecessary stress and you’ll have started up the ladder to happy home ownership.