It is understood that to buy something one must make a payment and as with all other things property purchases also follow this rule of logic. Down payments are part and parcel of the process of owning a home and they can put a reasonable dent in one’s finances. As such, every aspiring homeowner needs to think carefully about how much money they can afford to sink into their new residence without getting mired in debt and burdening their loved ones as a result.
The very first step an aspiring homeowner must take when figuring out what they can afford is obviously to evaluate how much money they have and are earning. Aside from one’s savings, this includes one’s monthly salary as well as other sources of income such as fixed deposit interest gains and dividends. For married couples, combined incomes and savings are the final total.
Of course, the income number is only the starting point as it does not take into account the money that is spent from day to day on essentials and other items. This leads to the next step which is tallying up all these expenses and deducting them from one’s total income so as to determine how much disposable income one has.
Wants versus Needs
The amount of money one has available to put into that down payment can be increased if the aspiring homeowner in question were to critically analyse the expenses they rack up every month and see what they can live without. While treating oneself every now and then is fine, dialling back on the luxury expenditures may provide some much-needed room to breathe from a financial perspective. It is never a good idea to be in debt, so keeping an eye on one’s credit card usage is a wise move.
A dangerous trap that aspiring homeowners face is thinking that purchasing a home is the final goal when they should in fact also consider how they will fare financially far into the future after the final payment has been made. Many experts say that only 25-33% of one’s monthly income should be spent on buying or renting one’s home while 10% is expected to be used for the basics, 15% on luxury and 20% as emergency funds. Additionally, it is never too early to think about setting aside money for one’s golden years.
Crafting a Savings Plan
Saving money is the cornerstone of solid financial planning, be it for the purpose of purchasing something like a home or a rainy day fund. Every aspiring homeowner should have a savings plan that involves shoring up money for their home as well as making sure there is always money available for emergencies such as repairs and maintenance work on said home. Setting up an account and storing money there to earn interest is a sound move.
Sticking to the Plan
Of course, making a plan is one thing; adhering to it is another. Each and every aspiring homeowner is solely responsible for achieving his or her objective of owning the home they want and that means sticking to the limitations and goals they have set for themselves.