5 budgeting tips that help you achieve homeownership
Everyone has goals they’d like to achieve, whether in the not-too-distant future or somewhere down the line. At the top of the list for many is the American Dream of owning a home.
From advantages like having a place of your very own to financial perks – such as building equity and tax deductions – the bonuses of homeownership are truly boundless. But as with anything in life that’s worth accomplishing, purchasing a residence requires planning. Depending on what you’re looking for, a typical house these days costs hundreds of thousands of dollars, with the median now hovering at approximately $276,900, based on the most recent statistics available from the National Association of Realtors. With many people applying for a mortgage, high demand has a tendency to elevate home values.
However, given the right plan of action, buying a house can be something that’s well within your means. Here are a few mortgage tips that can help you realize your home-owning dreams without busting your budget.
1. Determine the size of house you need
Perhaps the most important component of purchasing a house is knowing the type of property that’s best for you and your family. Whether you live on your own, with a spouse or are raising one to multiple children who are in school, the size of your family plays into that determination. Thus, think about how many rooms you’d prefer, if you’d like a yard and whether city living is your preference or somewhere more rural. All these elements factor into how much you can expect to spend.
2. Establish what you can afford
No two budgets are alike. People have various sources of income streams, the primary one being what you do for a living. Personal savings can help as well, but what you earn on an ongoing basis – and the expenses your salary goes toward – plays the biggest role. How much of what you earn ought to go to mortgage payments? The general rule of thumb is no more than 25 percent to 30 percent of your gross income. This helps to ensure you’ll have the funds necessary for regular and discretionary expenses, all while continuing to save what you don’t spend.
3. Assess your debt
From car loans to student loans, credit cards to medical bills, most Americans have debt – $13 trillion worth of it, according to data from the Federal Reserve Bank of New York. There’s nothing wrong with owning debt, but having the funds to continue paying it off must be considered when deciding how much of a mortgage you can comfortably afford. Write out all your recurring debts – and how long it will take until they are paid off – so you don’t miss anything.
4. Save for your home’s down payment
The great part of the down payment is what you spend all goes toward the principal of the house. In other words, the percentage of the price paid reduces what you spend per month and for how long. Plus, with a down payment of 20 percent or more, you won’t need to purchase mortgage insurance.
While a down payment of 20 percent or more isn’t required – the typical one among first-time buyers is 5 percent, according to NAR research – the more you pay now means the less you’ll spend later on. Financial experts recommend putting aside around 25 percent of your regular income for the down payment. Using the current median as an example, this means that if a house costs $276,900, 20 percent of that would equal $55,380. But remember, this is the ideal. You can still successfully afford a house without a 20 percent down payment. Your lender will work with you to settle on an action plan.
5. Pay all your bills on time
If you consistently take care of your bills – paying them off in full before the deadline – you’re in a great position to obtain an affordable loan. Your credit score gives your lender an idea of how you handle your finances. A paper trail of timely payments should help you qualify for a loan that’s low in interest.
Polls consistently show that Americans view buying a home as the best long-term investment the average person can make. Adhering to these budgeting tips can give you the financial backing you need to live out the American Dream. Contact us today to learn more.
Outdated Browser Detected
Thanks for visiting! It appears you’re using a slightly older web browser. Kentucky Bank recommends using Internet Explorer 10 or newer. If you continue using your current browser, you may have a degraded experience on our website. To upgrade, please follow the steps listed here.
On Sunday, March 24, from 2:00 AM until 6:00 AM, we will be performing scheduled maintenance on our mobile banking app, and you may experience issues accessing the app during this time. We apologize for the inconvenience. Thank you.