How to Not Live In Debt When Buying a New House

Posted June 14, 2023 by in Home

Buying a new house is an exciting milestone, but it can also be overwhelming and stressful. The thought of taking on debt can make the process even more daunting, especially if you’re not sure how to manage your finances wisely. But fear not! With some careful planning and research, you can avoid living in debt when buying a new house.

In this blog post, we’ll share some practical tips to help you set a realistic budget, compare mortgage options, save for a down payment and plan for additional expenses like closing costs and home maintenance.

Set a realistic budget

It’s important to evaluate your finances and determine how much you can afford to spend on mortgage payments each month. You will want to consider your overall income, as well as your expenses, and any other financial obligations that you may have soon. When setting your budget, keep in mind that owning a home comes with additional costs beyond the monthly mortgage payment. 

You’ll need to consider expenses like property taxes, utilities, homeowners insurance, and maintenance costs. It’s also important not to stretch yourself too thin financially. Just because you’re approved for a certain amount of mortgage doesn’t mean it’s wise to borrow the maximum amount. 

Be realistic about what you can comfortably afford without sacrificing other financial goals or living paycheck-to-paycheck. Remember that unexpected expenses can arise at any time – from emergency repairs to medical bills – so it’s always better to err on the side of caution when setting your budget.

Research and compare mortgage options

Start by researching different types of mortgages available in your area, including fixed-rate and adjustable-rate mortgages. Each option has its pros and cons depending on your long-term goals. 

Once you have an idea of what type of mortgage you’re interested in, it’s time to shop around. Contact several lenders or use online comparison tools to get multiple quotes from different companies. Don’t forget to consider factors beyond just interest rates when comparing mortgage options. 

Look at closing costs, down payment requirements, and any other fees associated with each loan. If you want to make this easier, you can always resort to a NZ mortgage repayment calculator or any mortgage calculator you have nearby. It’s also important to check each lender’s reputation by reading reviews from previous customers and checking their credentials with regulatory agencies like the Consumer Financial Protection Bureau.

Save for a down payment

In essence, the larger your down payment, the less you will have to borrow and the lower your monthly mortgage payments will be. To start saving, it’s important to set a goal for how much you want to save and create a budget that allows for regular contributions towards your down payment fund. 

Look at every expense and see where you can cut back so that you can put more money aside each month. Another way to save money is by setting up automatic transfers from your bank account into your savings account on payday. 

This ensures that you are consistently saving without having to think too much about it. You may also want to consider alternative ways of earning extra income such as selling unwanted items or taking on freelance work if possible.

Avoid taking on additional debt before buying a house

This means refraining from opening new credit cards, making large purchases on existing ones, or taking out personal loans. Why is this so vital? Well, when you apply for a mortgage loan, the lender will scrutinize your financial history and current standing.

 If they see that you have recently taken on more debt or increased your credit utilization rate (the amount of available credit you’ve used up), they may consider you a higher-risk borrower and either deny your application or offer less favorable terms. Furthermore, adding more debt before buying a home can reduce the amount of money that lenders are willing to give you for an affordable monthly payment plan. It can also increase the interest rates that come with those payments.

Plan for additional expenses like closing costs and home maintenance

Closing costs can include fees for appraisals, inspections, title searches, and more. It’s important to research these expenses ahead of time so you can budget accordingly. Some lenders may even offer assistance with closing costs or provide options for rolling them into your mortgage payments. 

Home maintenance is another expense that many first-time homeowners overlook. From routine upkeep like lawn care and gutter cleaning to unexpected repairs like roof leaks or plumbing issues, being prepared for these expenses can save you from financial stress down the road. 

To plan for these additional expenses, create a separate budget specifically for home maintenance and factor in at least 1-2% of your home’s value per year. This will ensure that you have funds set aside when something needs fixing or replacing.

Remember to set realistic budgets, research mortgage options, save for a down payment, avoid taking on additional debts before buying a house, and plan for additional expenses like closing costs and home maintenance. 

Once you have gone through all these steps successfully, owning your own home will be one of the most fulfilling experiences of your life. It may take some hard work initially but with careful planning and budgeting strategies at hand, achieving this milestone should not feel out of reach.

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