Buy What You Can Afford Now, Not Later to Avoid the Homebuyer’s Remorse
If you are looking to buy a home, there are a number of different rules for deciding how much you can afford. The bottom line is that you should buy what you can afford now, not in the future.
This seems like pretty obvious advice, but it’s very easy to overlook. Many rules of thumb for determining how much home you can afford don’t really take into account your current situation. For example, the 20% down rule is great, but it doesn’t take into account how much you earn or how much you have in the bank. You can get a windfall income of $ 100,000. This does not necessarily mean that you can afford a $ 500,000 home.
At MoneyNing, the writer Connie May offers some tips on how to avoid a homebuyer’s remorse. She explains that buying more home than you can afford can make your lifestyle difficult, and once you’ve bought it, it’s not easy to reverse that decision.
There are several ways to ensure that you are purchasing within your means. First, think about your net worth. It’s a bit of a myth that your home is an investment , and even if it is, you still don’t want your entire portfolio to be in one expensive asset. Some experts suggest that your home should not exceed 40-50% of your home equity. Also keep in mind the old wage-based rule of thumb : Don’t buy a home that’s worth more than three years of your gross annual income. Some options say no more than two years; others say two and a half. However, this rule does not take into account how much you have in the bank or even how stable your job is.
This is why it is probably best to consider all of these rules, including the 20% down payment rule . Another helpful tip? Live as if you are a homeowner before buying. For example, if you rent for $ 1,000 a month and plan to buy a home where your monthly payment will be $ 1,500, set aside that extra $ 500 each month to make sure you can actually afford it.
For more tips, check out May’s post at the link below.
How To Avoid The Remorse Of A Home Buyer Before It’s Too Late | Money