Do you feel your budget might be a bit too tight for a house? Well, fear not. Through a few simple steps, you can easily see how much money you have to use. Once you do this, you are only a short move away from putting a down payment on your dream home. Below are steps for how to buy a house on a tight budget.
Step 1: Crunch the Numbers
First, sit down in a quiet location. Then, write out all of the avenues of possible income at your disposal. Of course, do this as meticulously and methodically as possible to get a clear picture of your financial situation. If you are living in a dual-earner household, then you will need to do this for the income of both parties.
Step 2: Calculate Your Total Expenses
In this step, calculate where all of your expenses lie. Again, if you are working in a dual-earning household, then you will need to take both parties’ expenses into consideration. Some possible topics to discuss include the below:
School fees (if applicable)
Health and life insurance policies
Food, clothing, and personal spending
Average amount spent on entertainment per month
Step 3: Calculate Home Ownership Costs
Your total amount of income minus your total expenses each month will give you an idea of how much surplus there is; then, you can dedicate this surplus to your home ownership venture.
At this point, you likely have some idea of which property you would like to buy. Add up the payments, taxes, and insurance requirements for the property in question. Ideally, this number should not exceed 25% of your total monthly take-home income.
In order to maximize the plausibility of your investment, do these calculations based on a 15-year fixed rate mortgage. A mortgage calculator will help you get these numbers together and give you an accurate reflection of the cost to buy a property.
Step 4: Grow Your Tight Budget
Unfortunately, the reality of life is that finances are rarely fixed. While you might have a good understanding of your income versus expenses, as well as a good idea of how much you can put toward owning a home, this can change at any time. Your small budget can be affected negatively or positively overnight. To prepare for this, you might have to wait until there is more surplus in your budget; this is because you do not want unplanned future expenses to affect your house payments.
Step 5: Apply and Buy
Eventually, you might feel ready to go ahead with the applying and buying process. Planning your budget to the finest details will give you the confidence to go forward with your investment. You will have the numbers in place, along with a clear understanding of your position in the market.
Most importantly, buying a house on a tight budget is completely doable; it is certainly not something that you have to avoid. As long as you are clear about all of the relevant numbers and you do enough planning, you can own the home that you desire!