The time has come to buy a new home, and you want everything to be perfect. To keep yourself on the path to becoming a happy homeowner, one of the most important things to keep in mind as you search for your dream home is your finances.
Planning a budget is an essential first step toward getting the happily ever after you’ve been dreaming about, but how do you create a home-buying budget? Whether this is your first home or you’re a seasoned homebuyer, the budgeting process might still seem intimidating. We’ve put together these steps for creating a simple home-buying budget you can use to determine if you can afford a new mortgage.
The first step in creating a budget is reviewing your income sources. How many people will be contributing to paying off your home, and what steady streams of income does each person have? Add up your total monthly income after taxes to see how much your household brings in every month. Include all regular earned income, such as full- and part-time job wages, tips, and self-employment net earnings.
Everyone has an array of non-negotiable expenses. After figuring out how much you and your household make each month, determine how much of each paycheck needs to be set aside for non-housing-related costs. Pull up a spreadsheet and sit down with a few of your latest bank statements to calculate how much you pay for additional expenses.
Here’s an example of what your non-housing budget items might look like every month.
Use your monthly statement to personalize your list to reflect an average months’ worth of expenses in your household.
As a homeowner, you’ll have an array of home-related costs to manage every month. Expect to factor the following expenses into your budget.
Use our mortgage calculator to determine an estimate of your monthly mortgage payment once you find a home you’re interested in pursuing.
Now that you’ve figured out how much you can spend and what you’ll be spending every month, subtract your projected total expenses from your monthly income.
If your projected expenses would leave you in debt every month, you’ll need to revisit your budget and make some adjustments. You might choose to find a cheaper home with a lower monthly mortgage payment, or you may want to take a closer look at your budget to see where you can reduce expenses. Even if you’re breaking even, you may want to put off buying a home until you have more of a cushion in your budget. Rushing into home ownership before you’re financially ready can lead to both short- and long-term negative consequences.
However, if you find that including a mortgage and other home expenses in your monthly budget doesn’t leave you pressed for money, you may be ready to begin your journey to home ownership and take on a mortgage.
In addition to calculating monthly payments, it’s important to consider the down payment you’ll need to buy a home. The down payment could impact your ability to be approved for a loan or your monthly expenses such as PMI. It’s generally recommended that you have a 20% down payment, but you should check with your financial institution or potential lender’s mortgage department to determine their requirements.
Many first-time homeowners are unsure of what to expect when buying their first home. A trusted real estate agent or financial counselor can provide guidance. They’ll walk you through the various types of home loans to help you determine how much house you can afford.
They can tell you which loan amounts are typically approved for those in your similar financial situation. You’ll get a better idea of what to expect and how much you need to save to buy a home.
Your financial institution likely has mortgage specialists who are available to help you, as well. Each may have a different mortgage application process, so it’s important to understand how their specific process works.
We’re here to walk you through every step of your financial future, including buying your dream home.
Our resources, such as our home buying budget calculator, are designed to help you decide which financing option is right for you. We also offer a wide array of mortgage products, personalized service, and expertise to guide you in your decision.
If you’re ready to find a home loan that is right for your needs and budget, call us or browse our mortgage rates today.