Image of a balanced scale with bags of money on one side and a house on the other

How to Budget Wisely When Purchasing Your Next Austin Home

If you’re interested in buying a house in Austin, you’re in good company. According to the Austin Chamber of Commerce, Austin experienced a 35.7 percent growth in population between 2006 and 2016. For many Austinites, it’s not surprising to know that this city is one of the fastest growing metro areas in the country. Austin ticks many of the must-have boxes for those seeking an area to put down roots offering employment opportunities, open spaces, an excellent school system and a seemingly long list of dining, arts and music venues to keep young and old entertained.

Along with this population boom, comes the demand for more housing (It’s estimated that the population between 2020 and 2030 will soar by 31.6 percent). With competition raising home prices, many wonder if they can afford to buy Austin TX real estate at all. If you’re eager to join the many homeowners who call Austin home, but want to stay on budget, follow these 7 budgeting tips for buying a home in Austin.

Tip 1: Set a realistic budget for Buying Your Home

There’s a lot to consider financially when you’re buying a house or purchasing condos in Austin. You’ll need to take the time to add up your sources of income, make a list of your current monthly expenses (utilities, food, car payments, childcare, entertainment, credit cards, etc.) and factor in the extras that come with homeownership: property taxes, insurance, homeowner’s association dues and repair costs.

Generally, it’s wise to keep your total housing costs to around 25 to 35 percent of your after-tax income.

As part of your budget, you’ll also need to calculate how much to save for a down payment, inspection fees and closing costs. Closing costs generally run between 2 and 5 percent of your loan amount. If you can, see if your Realtor can negotiate to have the seller pay for a portion of the closing costs.

Tip 2: Check your credit

Before applying for a mortgage loan, take a look at your credit history and score. If you notice any errors, now is the time to dispute them and to look for ways to improve your credit, such as paying outstanding debts in part or in full. The higher the score, the better the mortgage deal you’ll get.

Tip 3: Get Pre-Approved for a Mortgage

Consult with a mortgage lender who will research your financial information and determine how high of a loan you can obtain. Your Austin real estate agent can provide you with a list of lenders to choose from, if you don’t yet have a mortgage lender in place.

That being said, just because you’ve been approved for a certain amount, doesn’t mean you should automatically spend that much. Banks will qualify you based on your gross (pre-tax) income. They’re not factoring your monthly expenses or unforeseen issues that may arise such as a broken furnace or washing machine — that’s up to you to think about.

Make sure you take these all of these factors into account, when creating your budget. You don’t want to end up over your head in a home purchase.

Tip 4: Save for a higher down payment on Your Home Purchase

The recommended average down payment is 20 percent. Putting down more will help you qualify for a better interest rate, your monthly mortgage payments will be lower and you’ll avoid having to pay private mortgage insurance (insurance that protects the lender if you’re unable to make loan payments). Putting down 20 percent also gives you the advantage as a buyer, since lenders and sellers prefer the security of larger down payments and might favor your bid over others.

Twenty percent, however, may not be realistic for everyone; about 45 percent of homeowners put 20 percent down. For some, putting down a smaller amount leaves them with money to spend on home improvements, furnishings and other expenses.

Tip 5: Look ahead to the future and What Features You’ll Need in a Home

When buying a house in Austin, consider your long-term needs. Do you plan on staying in the home for several years? Are you secure in your job? Do you plan on raising a family in the home or are you looking for a starter home? Do you want to flip a home? (If it’s the latter, see our guide to Flipping Houses in Austin.)

If you’re interested in an investment property, look for duplexes or houses that have an in-law apartment that can be rented for extra cash flow. Do an Austin home search on up-and-coming Austin neighborhoods or for a small, fixer upper in a thriving neighborhood.

Another helpful resource is our article on 2018’s Austin Real Estate Market Trends.

Tip 6: Research your mortgage options

Fixed-rate mortgage means your mortgage interest rate – and your total monthly payment of principal and interest – will stay the same for the entire term of the loan. This type of mortgage works best if you plan on owning your home for more than seven years or you prefer the stability of a fixed principal and interest payment.

An adjustable-rate mortgage has an interest rate that may fluctuate throughout the duration of the loan. This works best if you want initial lower monthly payments or if you think interest rates may go down in the future.

Tip 7: Choose the right real estate agent

An experienced, trusted Austin Realtor® is a great source of help when you buy a house in Austin. The right agent will listen to your needs, offer advice and help you stick to your budget. Contact Habitat Hunters today to help make your home buying experience one that is professional and on budget.

For additional tips on buying a home in Austin, be sure to check out this handy Guide to Buying a House in Austin.

Habitat Hunters handles both sales and rental properties in Austin and the surrounding areas. If you’re just moving to Austin and interested in an Austin rental house or Austin apartments, please review our Rental information. If you’re selling or buying a house in Austin, contact us today at 512-482-8651.