Know Your Budget
Knowing your budget is critical in your home search. You determine your budget based on the prequalification and preapproval from your lender. You may also discuss this with a financial advisor. Some people, even though they are approved for a higher amount, will still chose a lower budget for a variety of reasons such as not needing a large home because they have a small family or don’t spend a ton of time there. They may want to save money for other things they value such as college education or retirement.
Through the prequalification process, you may have discovered that your budget was unrealistic. This can be very discouraging, especially for a first time homebuyer. But, there are ways to change this reality. You can:
Put more money into the down payment
By putting more money into a down payment, you can reduce your monthly mortgage payment. This may mean you need to wait and build this up. You may consider selling items you don’t need, asking for a financial gift from family, finding a cosigner, or bringing in additional income from an additional job.
“It definitely helps to have an emergency fund (enough in the bank to cover two to six months of bills), a credit score of 740 or better, and a 10 to 20 percent down payment,” says a leading financial education firm, GoBankingRates.com
Look for ways to build your credit, find a loan product with a lower rate and build your savings both for your emergency fund and your down payment.
Look for the size or type of home you love in a different area
Sometimes when you are limited by your budget, it may mean that you need to look for what you want in an area you hadn’t considered before. This isn’t always an option, for example, if you want to have a highrise condo but they are unaffordable and only downtown. However, most the time, you can find a compromise in another area of town. This is particularly true in Denver, where the outlying areas are growing and being developed all the time.
You will still want to make sure the location is safe, a good investment and convenient for your needs. This is where a good Realtor comes into play. They have industry knowledge about comparable areas and make sure you are getting into a good investment that meets your needs.
When you are looking in a different area of town, do consider the trade offs you will be making. For example, if you move 30 minutes from your office when it used to be a 10 minute commute, you may want to consider the additional gas expense, tolls and auto upkeep.
Stay in the area you love and choose what home features really matter
There are certainly great reasons to choose to stretch your budget in order to be in the home you really want, and location is one of them. It is usually always better to spend a bit more to be in a good location. Location can affect resale value, be important for safety and school districts or make for an easier commute. These can all be more important than having a fireplace feature wall or hardwood. Consider your real needs and readjust your expectations accordingly.
Consider the long term vs. short term
Take into consideration other budget changes that could be effected. For example, a friend downsized from a mountain home into a town home. Her budget and mortgage payment were the same in both places. However, she now had to consider Association dues, which wasn’t something she paid in her home. With half of the square footage, her utility bill was expected to cut in half as well. She also wouldn’t need to do yard work or pay for lawn maintenance or trash removal. Basically, the reduction in these expenses more than covered her new HOA Fees.
Also in consideration of the long term, consider your job. Do you expect that your household income is going to increase during your time in the house? What would happen if an income source was lost? Is it likely that you could be transferred? These questions can help you determine what is really important at the end of the day in regards to what you want in a home.