From entering adulthood to finally settling down, buying a dream house is on many people’s lists. However, as much as appealing this dream sounds, you’ve got to be careful not to turn it into a financial nightmare. 

While buying a house can be a valuable asset, it can also stretch your budget, leaving you with almost nothing. 

So, if you don’t want to experience such a downside, start reading this blog! We will explore 4 rules to know before purchasing a house and protecting yourself from falling into the financial pit. 

It doesn’t matter if you’re getting an upgrade or a first-time buyer; our tips will help you regardless! Let’s get started. 

Rule 1: Keep Your Payments Under 28% of Net Income

One way to find your spending on a home is to follow the 28% rule. It means avoiding spending more than 28% of your income (before taxes) on mortgage payments. Including taxes and insurance. 

Since your take-home pay or net salary, is what you actually have to pay your mortgage each month. So, it’s better to aim for a mortgage payment of 28% or less of your net pay.

Having A Problem With Understanding The Concept? Here’s An Example;

Banks often calculate their loan amounts based on your gross income, not your net pay. So, if you earn $6,000 monthly after taxes and deductions, a monthly mortgage payment of $1,500 is reasonable. 

Here’s what a budgetary couple has to say; 

“Whenever I and my suppose were buying a house, we used to follow a simple rule. Which is cutting the loan in half that the bank approved to determine our budget.”

So, when purchasing a home with a partner, consider basing your budget on only one of your salaries. That way, if one of you loses your income, you can still afford the mortgage payments while you look for another job.

Rule 2: Delay Your House Purchase Until Debt Is Manageable

Apart from buying a house, we understand your other budget-stretching investments, like, 

• Car
• Credit card
• Student loans

Thus, in such a scenario, adding a mortgage payment can really shatter your budget plan. So, what to do here? Analyze your spending and saving, of course. 

Also, it’s important to add all the monthly loan payments and see if it’s more than 36% of what you make before taxes. Though some people still manage to buy a house in such a tight plan. Things can go south if there’s an economic downturn. 

Yes, we understand how largely you might be to buy that house. However, we suggest not putting yourself in a situation where you’ve to choose between paying bills or a mortgage. 

So, if you can wait for a while, clear off all the debts, and save enough money, you can buy the house. In this way, you’ll be less stressed and happy to get everything done within a budget. 

Rule 3: Allocate Up to 4% of Home Value for Annual Maintenance

Don’t worry; the list isn’t long. We’re almost here, and here’s another rule for the closure. Just comparing mortgage and rent payments doesn’t give the full picture. When you rent, everything needed to keep the home in good condition is already included.  

However, things are different when you decide to buy a house. For example, you have to pay for things like property taxes, insurance, HOA fees, and unexpected repairs. 

Also, it’s important to budget for these expenses, which can be around 1% to 4% of your home’s value each year. 

An Example To Understand This Point Better

Suppose your home is worth $200,000. In that case, you should save $2,000 to $8,000 per year for maintenance. Also, you’ve got to think about your lifestyle and what you’re willing to pay for time and money. 

Let’s say you don’t like mowing the lawn. Then, buying a house with a big yard might not be the best idea. Though you can spend extra money to hire someone to do it for you. 

Rule 4: Be Realistic About Your Savings & Spending

Buying a house is the first on every adult’s dream list. But you’ve got to be realistic about other things, too, such as your overall income and spending budget. Then, there’s a certain lifestyle you would want to follow. 

So, amidst all this, it’s easy to experience setbacks when running low on cash. But once the sun rises right and you feel less burdened, don’t wait any second to check this box off the list. Though, the best way to calculate your spending and saving would be to create lists at the start of every month. 

The Takeaway

So, that was all in this before you buy a house rule guide. Now, remember to go through the points discussed above whenever you’re in a similar situation. 

Overall, don’t let the stress get to your head much; the hold is only for the time being; you’ll complete your goal in no time!