7 Warning Signs You Cannot Afford That New House Buying Guide

A solid foundation for you and your family is what a home provides. Buying a home will always be one of the most important decisions in anyone’s life. Your home is your financial health indicator. It will help you achieve a certain level of financial freedom and also help you build net worth. But if buying a home that is larger than what you can afford then it can become a major burden and also uninvited stress. Well, how do you know if you can’t afford a house? Here are some key signs one must look out for before purchasing that ‘not so affordable home’

 1. Outside your budget!

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Financial comfort is what one must think of.. Home buyers tend to go beyond their budgets. But we should be aware that a budget exists for a reason! Going beyond what was initially your budget might be alarming enough for a home buyer to indicate that - this house is not meant for you. To start with, What is a budget? For that you need to calculate your monthly expenses from your current income. Your expense might increase so make room for that additional expenses but your salary would be the same. Keeping in mind your expenses, are you ready to pay a particular amount every month as your home loan EMI , if not then take this as a warning that - This house is not for you!’

2. Assumptions about future income and expenses

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We’ll make more money in the near future so getting a larger and more expensive home is not a bad deal. This thinking is disastrous and possibly land you in trouble. You can't guarantee that you or your better half might get a raise that you were counting on. Predicting your future income and expenses is highly impossible with any real accuracy. Depending on your current salary, and an increase in your expenses should be considered whenever you are budgeting for a house. Such approach will give you enough room to save money, invest, and eventually pay off that house completely.

3.  You're unable to put 20 percent down

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To simple put in words, the more you put down, the less you'll have to borrow. If you put a huge chunk of money as your down payment then it would be advantageous as you'll start off with a larger piece of equity in the home. It also means lesser interest payments.

If you weren't able to save 20 percent for a down payment, ask yourself why you think you'd comfortably make the mortgage payments now. Rather than jump into buying, consider saving more for a larger down payment. Your future self will thank you.

4. You are nearing the maximum mortgage

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When you apply for a mortgage, banks will tell you that you’ve been approved for a certain amount of mortgage. It's important to remember that this is the maximum amount that you can borrow. You should always keep in mind that the actual amount you borrow should never be close to that maximum.  

Banks are more conservative now than in the past, but still are likely to approve you for a loan that is larger than what you can comfortably afford. Don't get too excited about what the bank says as they are readily available to give you loan on higher rates don’t fall for it until and unless it is in your budget.

5. Your decision is guided by emotion

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Don't let your emotional decision take over your financial decision. Buying a home is ultimately a financial decision, and we tend to turn it into an emotional one. Your dream home could become a nightmare if you allow your emotions to be your guide. That scenic view, private theatre, swimming pool, roof top deck aren't going to seem so special when you have trouble making the monthly payments.It is absolutely fine to have certain criteria in mind when searching for a home. But you need to make sure that  affordability tops it!

6. Borrowing From a Retirement Account

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Many homebuyers borrow from their retirement accounts to help cover their down payment. When you tend to use your retirement funds remember that you are tapping into funds that were intended for the future. Remember the reason you chose to save for retirement in the first place. If dipping into your retirement savings is your only option for purchasing a home, consider that a warning sign.

7. Your debt-to-income ratio is more than 40 percent

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The best indicator that tells you how much your home loan should cover is your debt-to-income ratio. Debt-to-income ratio is the fraction of your monthly income you devote toward repaying debt. In India, households often pay 25-40% of their income as EMIs. But, debt-to-income ratio should ideally be lower than 30%.

If you find that your debt-to-income ratio is on the high side, consider backing away from buying a home immediately. Take time to pay off your other debts and boost your income, if you can. By entering the home buying process with a lower debt-to-income ratio, you'll be less likely to find yourself in a house you can't handle financially.

 To conclude, it’s not easy to admit, but you will know deep down if the home you’re buying is too much. If you have doubts then you’ll be doing yourself a favor by paying attention to them, even if it means passing on the home you had your heart set on. There are definite signs that you're about to get in over your head and taking them into account the costs associated with having a home that you can afford will have long-lasting effects on your bank balance that you may later come to regret. So think wise before you see the price!