How Much Can You Afford
So you want a new house?
Before you start going around display houses the first thing you need to figure out is how much you can afford. Get this wrong as a couple and it can damage your relationship, and you could finish up with a Ghost House.
Don’t let the marketing convince you to be too ambitious. Its better to get a smaller house and no financial stress than a big house and be struggling for the next ten years. After all its nice to be able to have some money left over after the bills have been paid to enjoy yourself.
The Barefoot Investor talks a lot of sense when he talks about the 20 -10 – 30 Rule. That’s have a 20% deposit, be prepared for a 10% interest rate rise, and don’t have mortgage repayment’s of more than 30% of your wages.
When we started off our approach was that we would borrow no more than I could pay off from my wages while leaving enough for living expenses. We also had mainly second hand furniture.
My wife’s wages went on buying new furniture, home improvements, holidays and luxuries. This meant that if she got pregnant or any other problems occurred we could still keep the house without major stress.
This meant that our first house was a small two bedroom house. Very much at the lower end of the housing ladder, but we were on the ladder, and building up equity for that next step. The running costs of the smaller house were also lower which certainly helped us pay off the mortgage faster before our next house.
Even if you already own a house and are looking to trade up the same financial considerations apply to your next house!
How big was your first House?
Budget has more posts about finding a house the right size for you