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The First Step Is To Plan Out Your
Financial Future
You’ve probably heard this before: Buying
a home is the most expensive purchase you’ll ever make. While that’s
certainly true, it really only scratches the surface. Maybe a better
statement would be as follows: Whether you’re buying, selling,
renting, or refinancing—or any combination thereof—your future financial
situation will be greatly affected.
So if you’re considering any kind of housing
transaction in the near future, your first step should be to make a
good budget.
When you do your budget, try to think at
least two years into the future. Although a long-term budget will
certainly change over time, think of it as a flexible guide rather than
a strict plan. Also, leave plenty of buffer room for unexpected expenses
or emergencies. Finally, be as realistic as possible.
Here are some of the areas that you’ll need
to consider when you do your budget:
Income – Try not to assume that
you’ll have regular increases or pay raises. You’ll be much better
off—and probably closer to reality—if you use your current income as a
set figure going forward.
Savings – Will you use your savings
for a down payment, closing costs, maintenance, etc.? Or will you use
savings as a backup in case of emergency?
Down Payment – If you’re buying a
home, the two major considerations in terms of a down payment are how
much you’re going to put down and where that money will be coming from.
Taxes – Keep in mind that your tax
situation will more than likely change, especially if you’re buying,
selling, or renting out your home.
Buying/Selling – If you’re selling
your home and buying a new one, consider the timing. Will you have to
carry two mortgages if your old home doesn’t sell before you buy your
new home?
Mortgage Options – Don’t worry about
all of the different loan options, monthly payment amounts, and interest
rates. Instead, focus only on what you can afford—now and in the future.
Once again, be as realistic as you possibly can.
Future Considerations – Are there
kids in your future? A new job on the horizon? A possible change in your
marital status? Such huge lifestyle changes may be difficult to predict
so far in advance, but that’s why you need to leave plenty of space in
your budget.
If you’re having difficulties coming up with
a workable budget, you may want to consider hiring a professional
financial planner to give you some help and advice. Many other
professionals—from tax lawyers and accountants to mortgage professionals
and investment counselors—will be more than happy to help you as well.
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