While most homebuyers are familiar with these more glamorous aspects of the buying journey, you might feel unprepared for the equally important task of budgeting to make your first home purchase a reality. After all, it can feel difficult to know where to even get started to prepare financially for buying your first home.
We hope with these tips that you’ll create your own, personalized path to your first home.
Figure Out Your Maximum Purchase Limit
The first step in coming up with a budget for your new home purchase will be calculating your spending cap. In other words, determining the maximum amount you’re willing to pay for your new house.
Consider Your Down Payment
Down payments can vary widely depending on the loan program you’ll be using to finance your home. Conventional loans, for example, require a minimum of 3% of the total purchase price as a down payment. Other specialized programs, like VA or USDA loans, can allow for buyers to complete the purchase with no money down.
Your down payment will depend on which loan programs you qualify for and select for your financing and how much you can afford while also saving funds for other homeownership costs. Your loan officer is one of the best resources for getting a firm handle on pinning down a down payment range.
Find a Manageable Property
Aside from firm numbers, like the 28/36 rule and your down payment planning, you’ll want to think both optimistically and realistically when narrowing down your potential purchase options. It may be tempting to go for the biggest house you can find within your price range, but that might bring on unwanted stress.
Reflect on any major repairs that might be necessary, or upgrades you’re strongly considering, and make sure you can comfortably accommodate those costs. Getting a fixer-upper might sound like a great challenge at first, but as you start to estimate the costs of materials and labor, you might find out it’s not the right choice as your first home.
Budgeting for Homeownership Costs
Owning a home includes paying for more than just your mortgage. You’ll have other costs like homeowner’s insurance, property taxes, and private mortgage insurance to factor in. And then there are monthly bills, like air conditioning and utilities, along with unexpected expenses to account for, like maintenance and repairs.
Selecting a home that you love and that also leaves some wiggle room in your budget will help ease you into your homeownership journey, as opposed to stretching your budget too thin and causing financial stress.
Set and Carry Out Your Budget Plan
A tried and true method for any budget is to practice putting it into action. Once you’ve settled on a potential mortgage payment amount, pull those funds out of your checking account and set them aside each month for a couple of months. See if you can live out your budget comfortably, as this will help you determine if your plan is practical.
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