Frugal Home Buying

Home buying on a budget has become harder and harder over recent years and is something that most of us have to put off over and over gain.

This is both frustrating and can damage your frugal living budget in the long run if your goal is to own your own property.

As this is not a specialist mortgage site I will not even attempt to go into all the ins and outs of the various mortgages on offer, I will leave that to the experts.

However I will attempt to outline the basic options available and how best to approach it all with your frugal head on.

As with many things to live within a frugal budget, planning lies at the heart of ensuring that costs are kept to the minimum and that you won't be surprised by any unforeseen costs.

Planning your budget and incorporating as many of the costs involved in the initial purchasing of a home and the running costs etc will help you decide whether or not you are ready to take the plunge in the home buying market.

Home Buying - Can You Afford To Do It?

To find out if you really can afford to buy your own home you need to find out just how much you can afford to borrow.

This will mean shopping around and comparing various different types of mortgages, this in itself can be a minefield and the types of mortgages available are constantly changing, at present the main types are:

Repayment - this is where you pay a little bit of the amount you borrowed and the interest on that amount off every month.

Interest only - as the name suggests you only pay the interest off and an amount of money that is left to earn interest to pay the outstanding amount off at the end of the mortgage term.

Mix of the two

You will also have to consider which of the many deals on offer will offer you and your financial circumstances best. I.e.

  • Fixed term interest rate
  • A capped rate
  • A variable rate

All these things will determine if you will be able to afford the mortgage payments at present and also what will happen when your offer ends.

Tip: Make your self a table and work out how much your mortgage will cost you for different interest rates. This will prepare you for any changes in the rates in the future and will assist you in your final decision on how much you can borrow.

In recent years there has been a new type of account offered by a few lenders called offset accounts. I wanted to point them out as in some cases they may save borrowers either money or reduce the period of their mortgage.

They work by putting all your money in one big pot, savings, income,credit card debt, mortgage etc. The interest eared on all your money is offset against your home buying mortgage.

It can be quite complicated to understand at first but once you become used to the system it makes managing your money much simpler.

I would say though that these accounts will only really work for those who either have some existing savings or who are able to save money, as the more you have left in your account every month helps to reduce your mortgage. Ask your financial advisor if they may help you save money.

Once you have decided that you can afford to a buy a property and that your budget can accommodate the costs involved without becoming over stretched, your first rule in looking for your home is to stick within your budget.

Never be tempted to stretch your money over your comfort zone. Too many people have done this in the past only to find that when interest rates change they are no longer able to afford their mortgage.

Continued - The Hidden Costs of House Buying

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