Buying a place can be very tricky, and there are often many rules and market norms that a buyer is expected to follow. However, the most basic rule is that homebuyers are strictly told not to purchase a house that they cannot afford. The confusing part is that the term affordable has different implications, and it differs from buyer to buyer. According to research, the average price of a mediocre home is around $315,980; however, most buyers either pay more or less than this price. No matter what kind of lifestyle you are living, purchasing a home will increase your living standards as it provides financial security and confidence. Since buying a house is such a vital milestone, you must take every step carefully. Buying a house requires setting a budget which is not done by just getting a pre-approved letter from the bank. Most first-time buyers make the mistake of buying a house whose price is worth the value of money the lender is willing to give them without considering any other expense. Invest in Lahore Smart City.
The 28% rule
One of the oldest principles that investors use to set up a budget is the 28% rule. According to this rule, your monthly mortgage payments should not be more than 28% of your total monthly income. However, the value of the percentage differs as the federal housing authority allows people to take up mortgages which make up 31% of their total monthly income. It is important to consider any other debt that you may have, as you will have to use your income to repay that as well. Most mortgage lenders look at the debt-to-income ratio of the borrowers to determine whether they can repay the mortgage before approving them for the loan.
Expenses beyond the mortgage
Getting your mortgage approved is only the first step, and there are several other things that you need to consider individually. Purchasing a house is associated with several other costs that the buyer can not ignore. These expenses include insurance, home repairs, utilities, and maintenance costs. Another significant expense that buyers need to consider is the property tax which will be charged on the basis of the value of the property. When you look at these expenses separately, they may not seem that big of a deal, but they can account for a significant portion of your income once added up. These expenses can turn an affordable house out of budget; hence it is important to consider them from the very start. You can also buy plots in Kingdom Valley Islamabad.
The down payment amount
In most circumstances, even if the house is bought on a mortgage, the lender is expected to pay around 20% of the total purchase price to the buyer at the closing in the form of cash. If the buyer cannot pay this amount, they can still buy the house; however, they will pay the private mortgage insurance fee as compensation along with their monthly installments. While most homebuyers despise a down payment, it is a blessing in disguise. The higher your down payment cost is, the lesser the interest charged. It will also decrease the monthly installments you have to pay, freeing up your monthly income.
Moreover, paying the down payment increases your equity in the house which will, in turn, help improve your credit score. The amount you have saved up as the down payment should be the deciding factor in your budget. If you cannot afford the down payment of a house, then it is better if you choose not to purchase the house.
Conclusion
Setting a budget is extremely crucial, and no homebuyer should step into the real estate market without calculating their budget first. When homebuyers purchase properties they cannot afford, they face mortgage foreclosures due to non-payment of monthly installments. The first thing that a homebuyer must search for is affordability. Do you want to invest in1947 Housing.
Author Bio
Ramza Zahra is a Karachi-based freelance content writer who uses her life experiences and curious nature to research and pen it down and make a living. Currently, she is working with Sigma Properties as an Snr. Content Writer.
