While considering the choice between renting and buying, or deciding about how much home you can afford to own, consider making "practice payments" to a separate savings account.
Start by calculating the amount of money above your current payment that you believe you could spend on a home and set that amount aside each month. This can work for you in several important ways.
First, you'll have the opportunity to test and fine tune your budget before committing to a purchase.
If you find that you would be more comfortable with a few more dollars in your pocket each month, you'll have time to adjust your home search criteria before making an offer or applying for a mortgage.
Second, you'll be building up a cash reserve fund. This cash reserve will be peace of mind in the weeks leading up to closing and can help you with both expected and unexpected costs after you move into your new home.
Third, you'll have some down payment money. If you manage to save an extra $300 per month for 1 year, that's $3600 after 12 months. In areas where FHA loans are common, a 3.5% minimum down payment would be about $7000 on a $200,000 home.
A knowledgeable real estate professional can help you decide how much home you can afford, what type of homes are available in that price range, and whether home ownership suits your lifestyle. With a little bit of planning ahead, and perhaps a few months of practice payments, you'll be ready to make your move.
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