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6-Ways to Stay on Budget

In today’s environment of endless credit, big spending and luxury items, it’s easy to get in over your head. When you are thinking of buying a house, it is especially important that you keep things under control. An MSN.com article shares six tips for staying on budget.

1. Get a down payment. How do you know how much house you can afford? The answer depends on how much down payment you can commit and the mortgage you can obtain. A low down payment will translate into higher monthly payments, which makes everything more difficult. A 20 percent down payment is ideal to get the lowest possible interest rate. Take a careful look at your finances, such as money market accounts, savings accounts and other investments. A good tip to know is that first-time homebuyers are allowed to make penalty-free withdrawals of up to $10,000 from an IRA to buy a house.
   
2. Look at your lifestyle. Lenders will usually look at your income, down payment and amount of debt when considering how much of a loan they will grant you. Things like retirement savings, how many children you have to provide for and put through college and paying for major health problems will not be taken into account. It is up to you to look at your personal situation and know how much you can afford. In addition to these big life expenses, also think about fun things. If you get more mortgage than you can manage, you might not be able to buy those season tickets, dine out twice a week or take that European vacation.
   
3. Get pre-approved. During the pre-approval process, the lender will check your credit report, calculate your debt-to-income ratio and look at other financial factors. He or she will then come up with an estimate of what size loan for which you can qualify, or, in other words, how much house you can buy. Pre-approval means that you won’t waste your time looking at unaffordable properties, you will find out about problems with your mortgage application early and you will be a more appealing buyer, as the seller will know you can close the deal quickly and without a hitch, which can also give you more negotiating leverage.
   
4. Think about what you really need. Do you really need a five-bedroom house with an ocean view? Although it would be nice to purchase a $10 million house in Aspen, be realistic about your needs. Make a list of what you feel you must have. This may include items such as a back yard, three bedrooms, proximity to good schools or outdoors activities, three bathrooms or a three-car garage. You might have some flexibility on some things. For instance, a house you’re looking at might have two bedrooms and a den. Keep in mind that the den could easily become another bedroom with a little work. Don’t make too many concessions about your list, or you may end up with a list of regrets.
   
5. Institute a price cap. After the first four steps, you should know how much down payment you have, the amount you are pre-approved for and a personal sense of what you can afford. Now it is time to institute a price cap, or a maximum price you can comfortably pay for a house. If you are buying with a spouse or partner, make sure both of you fully agree on this amount. Also, tell your real estate agent and make sure he or she does not show you houses above that amount, so you are not tempted. Last but not least, stick to that amount!
   
6. Draw up a game plan. It’s time to plan ahead. Is this your first house? Your second? Where do you want to be in 10 years? Do you want to be moving on? Are you willing to add new rooms, remodel or completely renovate the house you buy in order to keep it? When you are buying a new home, it is important to know where you are now and where you want to be in the future. This will help you narrow down your choices in the present and will help you to understand where you need to be in a few years, such as saving for the addition of a guest cottage or looking for your dream home with the swimming pool and gourmet kitchen.

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