This is a really interesting and helpful guest post from Chill Insurance – helping you manage your money and still get the house of your dreams! As a young person who will undoubtedly be getting on the property ladder in a few years, I think it’s really important to know these things.
How much can you really afford to spend on your dream home?
If you’re on the lookout for your dream home, you might be tempted to stretch your budget. But how much can you really afford to shell out on a new property? If you splash too much, you could end up in financial strife. With this in mind, here are some issues to consider when you’re looking to land the perfect piece of real estate.
Calculate Your Monthly Costs
When you’re assessing affordability, don’t just think about your mortgage repayments. There are a whole host of other expenses that you’ll need to cover when you settle into your new home. For example, you’ll have to cover council tax and energy bills. In addition, you will need to take out certain forms of insurance. On the home insurance FAQs section of its website, specialist broker Chill Insurance points out that banks require customers to have suitable home cover in place as part of their mortgage agreements.
Before you commit to purchasing a particular property, make sure you research all of these costs to see how much you can expect to pay each month.
Moving In Fees
You’ll need to budget for the one-off expenses associated with moving to a new home too. For example, you should set aside money to cover stamp duty, legal fees and moving expenses. These bills may come to more than you think, and they could lower the amount you’re able to put down as a deposit. Factor in the cost of new furnishings and any renovations you plan to do too.
Consider Quality of Life
Think carefully about your quality of life as well. If you fall for a property, you might be tempted to push yourself to the limits of financial possibility. Ultimately though, this can prove to be a mistake. It could mean you’re unable to do many of the things in life that you enjoy, like going on holidays or socialising. As a general rule, experts advise against spending more than 35 – 40% of your net monthly income on your mortgage repayments. By keeping your home loan repayments below this level, you should be able to cover your other expenses and have at least some money left over for other things.
The Rainy Day Fund
Ideally your budget should also leave space to build up a rainy day fund. Having savings in place can prove crucial if you face emergencies like home repair bills or falls in your income. A financial cushion will also boost your peace of mind. It’s reassuring to know that there’s something in the bank just in case you need it.
We all want that dream home, but if you’re to avoid money troubles further down the line, it’s important to consider these points when you’re setting your spending limit.