Signs that the Home You Want is Out of Your Budget

Many are looking to purchase a home this year. As a matter of fact, an article by CNBC revealed that more millennials would buy a house in 2020.

Although buying a home allows individuals to achieve the American dream of homeownership, people should only purchase a house that they can afford to incur a debt for. Purchasing a home you can’t afford can be disastrous, as it can lead to debt overload and serve as a major source of stress and burden.

You’ll know that the house you want is too expensive for you when you come across any of these key warning signs:

The Mortgage Interest Rate is High

The Mortgage Reports, a site that publishes up-to-date mortgage and real estate financing news, predicts that the ultra-low mortgage rate of 2.85 percent will make a comeback this year.

Although home loan interest rates may become favorable this 2020, prospective homeowners can still end up with higher-than-average rates if the bank believes that they’re a high-risk borrower. First-time homebuyers with a less-than-perfect score, a high debt-to-income ratio, or both may get a high-interest rate from their lender. This translates to a higher mortgage payment, which may be difficult to pay every month.

If you find that your interest rate is higher than the market average, take a step back and figure why this is the case. Either your finances aren’t looking great or the house that you want is too costly.

Mortgage contract signing

You Have No Available Funds to Make a 20 Percent Down Payment

Paying at least 20 percent of the down payment amount has many advantages. You get the opportunity to enjoy a lower interest rate from your lender. You also avoid purchasing private mortgage insurance (PMI), an insurance that protects the lender if you cease paying your mortgage.

If you’re unable to pay the down payment now, you’re unlikely to consistently make monthly home loan payments. Do yourself a favor and save up for a larger down (the bigger, the better).

You Borrow from Your Retirement Account

Some homebuyers dip into their retirement accounts to buy the home they want. This is a huge mistake. The purpose of that fund is to help people live a good life during the golden years. If you find yourself reaching for your retirement fund, consider this a red flag. It indicates that you don’t have enough money, at present, to buy a house.

You Think You Have Just Enough to Cover Your Monthly Expenses

“Just enough” is not good enough.

When you own a home, the monthly mortgage payments should not be the only expense you should consider. You also have to factor in additional expenses, including moving costs, property maintenance, homeowner association dues (if applicable), and unexpected repairs. Before buying, make sure you have saved more than enough cash to account for home-related and surprise expenses.

Take note of these signs to determine if the house you want is too costly. When you secure a great mortgage interest rate and have more than enough funds for a down payment and monthly expenses, you can enjoy owning a home without worrying so much about your finances.