You will have to think about more than simply money when making this decision. If you have decided that you are ready to purchase a home, the first thing you will probably ask yourself is “how much can I afford?” In order to answer the question, it is necessary to consider a lot of elements.
Before you jump at the opportunity to get that seemingly fantastic deal on a home, learn how to evaluate what affordability implies. Different elements, ranging from the debt-to-income (DTI) ratio to mortgage rates, will need to be taken into consideration, as well as existing debts and your savings.
Let’s take a look at some of the things you need to consider before you jump into buying one of those superb apartments that you have your eye on.
Do you have any high-interest debt, such as credit card debt? If this is the case, you are most likely not ready to purchase a property at this point in time. Prior to starting your property search, prioritize paying off your credit cards. Aside from your mortgage, you will have a number of other obligations to meet. As a homeowner, you are responsible for the costs of maintenance and repairs to your property.
Your desire to design and furnish your home will almost certainly result in an increase in your expenses. Inspections and closing charges will be required, and you will be responsible for some of them. To purchase a home, you will need to make a down payment too.
Purchasing a home is a costly endeavor. The likelihood is that you are unable to make all of these payments if you have debt. To quote best-selling finance author Dave Ramsey, consider rent to be the cost of patience. Prior to taking on additional financial responsibilities, concentrate on paying off your credit card debt.
If you are free of debt, well done. However, you need to ask yourself whether you have emergency money set aside. If possible, save away three to six months’ worth of your basic living expenses in a savings account that you do not access until you are faced with a real emergency, such as losing your job. . When your car breaks down the same week that a major payment comes due, you can use this money to cover the expenses.
If you do not have an emergency fund, you could be just a few paychecks away from financial ruin.
Are you putting aside a suitable amount of money for retirement? If you have a workplace retirement plan, such as a 401k, make at least the minimum amount required to receive the full employer match.
If your employer does not offer a retirement plan, start an IRA and make regular contributions of at least 10 percent to 15 percent of your gross earnings. You do not need an employer benefits package in order to start an IRA, which is why many self-employed individuals, as well as those who work in positions that do not provide benefits, prefer to do so.
Before you buy a property, make sure you are putting aside at least 10% – preferably 15% – of your income for retirement.