Buying a home is, for most people, the single biggest financial purchase they will make. Having your own personal space and freedom, avoiding rent increases, property inspections, and contributing to your own financial well being make owning your own property very appealing. Just what are the issues you need to consider:
Can I afford to buy a house? Some Important Considerations
The first and foremost issue to consider is upfront financial commitment. This includes down payment costs, mortgage borrowing capacity, buying transaction costs and other ancillary expenses that are involved in moving into a new property. The initial deposit is usually a percentage of the home price. Using 10% as a benchmark, this is the upfront cash commitment you will need to meet to buy the property. Stamp duty costs and settlement costs also need to be determined. In some cases you may be able to source no money down deals. This will substantially reduce your upfront costs.
Qualifying for a mortgage requires the submission of a loan application. All financial lenders require you to answer some standard financial questions. This is designed to determine your total monthly income after tax, your monthly living expenses and the amount you have readily available for disposal to meet mortgage commitments. Based on the range of assessment criteria, financial lenders will come to a conclusion about your financing capability and risk profile. If you are successful in your application, a written letter will indicate that you pre qualify for the mortgage commitment. Undertaking this task will introduce you to the qualifying criteria, servicing costs and financial commitments you will be accountable for when owning your own home.
The market conditions determine the ultimate cost of the property you are interested in. You need to research the area you are considering to determine how much the home you desire will cost. You will be forced to adjust your expectations to meet the reality of the market. If the property you want o buy is considerably more than you can afford, you will either have to lower your expectations or continue to rent while you save up additional funds to meet the anticipated financial commitment.
It is prudent to consider the economic environment when asking "Can I afford to buy a home". Mortgage commitments typically consist of a fixed and flexible interest rate. If you are likely to be tied to a flexible interest rate, and the interest rates are on a steady increase, you will be faced with the challenge of meeting the additional servicing requirements. If your budgetary requirements are already tight, you will need to make an assessment of the impact for this.
Make sure you know all the costs of buying a new home. You will then be able to determine whether your current financial position is strong enough to make the purchase.