One of the best ways to invest money is to buy a house. However, one cannot afford to spend all his money on a house. With banks reducing the mortgage constraints and reducing the home loan rates to less than 5%, it is very tempting to buy a house. Though the house value is increasing constantly, it is important to have a limit on expenditure. (on how much to spend). The house might be the biggest investment that a person makes in his lifetime and it is important to be smart in this investment.
How much to spend?
Spending about 28% of gross income would be smart. Your monthly housing cost, which includes the mortgage, property taxes, fees and insurance should not be more than 28% of the gross monthly income.
The monthly debt payment for your house should not exceed 36% of your monthly gross income. The debt payment includes, the mortgage, credit card bills, the loans and other debts.
Loans are available at less than 5% interest even for a credit score of 620. There are government based FHA loan and VA loan that has very little or no down payment. The more you put into the down payment, the less you would be spending monthly for your home. It is always better to put the money you have in your long term savings for the down payment and not to touch your income.
Retirement fund for your down payment
If you are planning to put your retirement fund into the down payment, then you might need to make a smart move. The contribution from these funds would be tax-deductible and you need to pay income tax. The better option than putting your retirement pot into down payment is to take a loan against your retirement fund.
The cost of buying a house does not just end with getting the house. The moving cost, electrical works, plumbing works and remodeling costs should also be considered. Make sure you have saved enough to take care of those charges too.
Get help of an appraiser who would help you determine the exact worth of the house. He can also help you estimate how much you need to borrow to purchase a house. There are many online sites that would help you by providing information on remodeling. Read the agreement of sale and know how much the remodeller is ready to pay you to do your repair works. If possible, you can negotiate on the charges. Make sure to have an inspection before the appraisal.