Buying a home brings many financial changes with it. In order to maintain an overview, you should budget realistically in advance. This way you can avoid surprises and approach the project with a good feeling.
Build or Buy?
If an existing single-family house or apartment is acquired, budgeting for home ownership is much easier than if you as the client are building a house from scratch. The basis for budgeting when purchasing an existing property is the purchase price. This is determined by the seller and is only partially negotiable.
The only fixed point for new buildings is the land price. Budgeting for home ownership comes in two variants. When you work with a general contractor, the amount to be paid is determined in advance by the general contractor. If you build with an architect, work out a budget for the construction with him, which can still vary greatly until completion.
Foresight in the new building
Anyone who builds something of their own has a lot of leeways. From the bathroom to the kitchen to the living room – you design all the components yourself. The only limits are your budget and building physics. The prices for a house are made to vary greatly depending on the needs. You should think in advance how much luxury you want to treat yourself to. Otherwise, you could be disappointed when you have to come to terms with a compromise due to financial constraints.
consider Renovations when budgeting for house ownership
If you want to buy something that already exists, you would do well to find out more about the property. In particular, examine the renovations that have been carried out and the condition of the entire building technology (plumbing, heating, ventilation). So you can calculate how much will have to be set aside for future investments. Planned renovations, such as a new kitchen, better windows, etc. must be added to the purchase price.
Conditions of the bank
When you are budgeting for home ownership, the financing bank is at your side to advise and monitor your home budgeting. Ultimately, the credit institution has a personal interest in ensuring that you assess your financial situation correctly. The bank generally finances a maximum of 80 percent of the market value. You must bring in the remaining 20 percent as your own funds. At least 10 percent must come from account balances and not from an advance withdrawal from a third party.
The bank will also check whether you can afford the property with your income. To do this, it calculates the annual expense for your apartment or house using an imputed mortgage interest rate, a proportion of amortization and the expected additional costs. This cost item may amount to a maximum of one third of your gross annual wage.
When you buy a property, your financial situation changes fundamentally. A budget of the annual expenses helps for orientation and these are ways to cover property costs:
Interest rates are at an all time low. You shouldn’t be blinded by this, but plan ahead. Calculate a possible rise in interest rates in your budget and therefore calculate with 5 percent mortgage interest.
Even if the bank does not pay you any amortization, you want to reduce the debt in the long term. Set aside 1 percent of the loan amount annually to reduce the debt to retirement.
- Additional costs
A house or apartment generates ongoing costs for energy and water. Therefore, the larger the property, the higher the electricity bill at the end of the year. So calculate with 0.75 percent of the purchase price for ongoing expenses and minor repairs.
To prepare for renovations and major repairs, you should put something aside every year. This amount varies depending on the age of the house or apartment. As an average, you can count on 0.5 percent of the purchase price.
Conservative budget pays off
Foresight is rewarded. If you’re budgeting for home ownership from the start, you will always have an overview and are financially secure. It is better to calculate conservatively. If there is still a surplus in the end, so much the better. Are you also planning to buy a home? At SDG Realties, you get independent advice and tips. With our property listings and enviable expertise, you can get the right financing offer with a click of the mouse.