Setting financial limits for your first buy

Buying your first home is a big step. It can be a big step forward or, if you’re not careful, a big step backwards. As much as you want that dream home, remember you will be paying for it for a long time. If you set a financial limit and work within your budget, you can own your first home and enjoy it, too.

Finding your financial limits

Before you can set your financial limits, you need to find out what they are. Knowing your combined incomes and how much a lending institution is willing to loan you isn’t enough. You need to dig deeper:

• What are the hidden costs of buying a home? Can your finances cover them?
• How much will your new home cost you per month above and beyond your mortgage payments? Think about utilities, insurance, home maintenance and other regular costs.
• Do you have a fallback plan in case of a loss of income?
• Can you afford to make current and future repayments on your current income or incomes?

Put yourself through a ‘pressure test’ before determining your financial limits. Can you handle a 2 per cent interest-rate rise? Do you have enough money set aside to make your mortgage payments for a few months if you lose your job? No matter how secure your job seems today, something could happen in the future. Being ready for the worst will ensure you land safely on your feet if or when it does happen.

Sticking to your financial limits

After you’ve determined all your upfront and ongoing costs, you may have to put off that first buy for a while, but that shouldn’t stop you from getting to know the real estate market and exploring properties. Avoid falling into one of these common traps, though:

• Don’t fall in love with a house that is too far above your price range. Be pragmatic.
• Don’t skimp on important expenditures like getting a pre-purchase building inspection before buying a home.
• Don’t let fear or false optimism cloud your judgement.

If emotions are getting in the way of making rational decisions, consider hiring a buyer agent. As an objective party, they will know your budget, stick to it and may even be able to negotiate a better purchase price for you.

Taking risks is part of life. Knowing your limits and not taking unnecessary risks is part of success.