Owning a home isn’t just about having a roof over your head: it’s about investing in your future. However, buying a home is probably going to be the largest purchase you make in your life. It’s essential that you get your finances in order first.
Even while the coronavirus impacts local real estate and job markets differently, there are some fundamental things you can do to put you in a better position to buy a home.
1. Reduce Unnecessary Purchases
We all buy things that aren’t strictly necessary for our lives, and that’s OK. But when saving up for a home, you’ll want to limit such purchases. You don’t need to deprive yourself of pleasure!
But trimming away indulgences can add up to big savings quickly. Here are a few expenses people commonly trim when looking to save:
- Unused or under-used subscriptions to video streaming platforms
- Newspaper subscriptions
- Dining out
Deciding to create and implement a manageable budget will give you confidence and financial stability, so you can enjoy life’s pleasures without worrying that they’re unaffordable.
2. Calculate Fixed Income
Budgeting depends on knowing how much total money is coming in so you can manage money responsibly. You need to determine how much money is available after all expenses are paid.
How much money you’ll need after all taxes and monthly expenses are paid depends on the type of home you’re looking to buy. You’ll need enough set aside for a down payment and continuous mortgage payments.
If you have other revenue streams that occasionally bring you income, don’t factor them into your monthly budget. Rather, use them to pay off debt or ad the money to your savings. This way, your budget is consistent month to month.
Once you have an accurate picture of your monthly budget, you can scour your local housing market and determine what you can afford.
3. Decide a Course for Discretionary Spending
“Discretionary spending” refers to any money that isn’t tied to fixed expenses. This includes both non-essential and essential items; while things like clothing and groceries are essentials, it’s possible to spend less on them by, for example, opting for discount brands.
Plan what to do with the money left after making payments on fixed expenses and debts. Set aside some for things like clothing, grooming, transportation, and more.
4. Tabulate All Discretionary Spending
Discretionary spending refers to the purchase of non-essential items. Saving up to purchase a home may feel daunting at times, but a healthy budget will allow you to make discretionary purchases while meeting your monthly mortgage payments.
Just make sure you track how much you’re spending every month. It’s easy when spending is done through credit cards because your bank statements will list every purchase you made. If you’re using cash to make purchases, keep the receipts to help you track your spending.
Once you have the entire picture of your finances spread out before you, you can begin to budget for a home.
5. Move Forward with a Plan
Now you’ve determined how much money you have at your disposal. Is it enough? This will depend on your tastes and preferences, as well as the state of your local real estate market.
While the job market has been hit hard due to the coronavirus, the effects one would expect to see haven’t necessarily materialized on the real estate market. In April, sales activity and housing inventory in Greater Vancouver dropped 39% and 34%. Experts expected it to tumble as more homeowners delayed their plans for selling or moving to a time when it would be easier to conduct showings.
However, by July, house prices in Vancouver remained the same because there were fewer homes on the market. It’s hard to predict the ever-changing market, but can you can establish what you’re looking for in a home.
Many people’s priorities have changed. Where once it was appealing to live in a small condo or apartment near all the downtown action, now people want more physical space indoors and outdoors. This shouldn’t be surprising given that businesses in many regions had to close, and people were forced to spend more time at home.
Preparing to buy a home requires planning a budget and planning for where and how you want to live. Be thorough and diligent with financial planning so you can afford the home that’s right for you.
Managing a household budget is challenging, but it can and must be done. Even if you think you have a general picture of your finances, you must peg your budget down precisely before purchasing a home. Keep the above five tips in mind, and you’ll be better positioned to be a homeowner.