Budgeting for a New Home: Tips to Stay on Track

A home is one of the most significant purchases anyone can make—particularly for first-time homebuyers. But it’s easy to exceed or miscalculate your home-buying budget. Many home buyers usually search for homes based on the monthly mortgage payment without considering possible additional expenses. Creating a realistic budget for your new home and sticking to it will help ensure that your dream of homeownership becomes a joyful and financially secure reality.

 

Why Should You Create a Home Budget?

Buying a home today offers exciting new opportunities and experiences compared to the past. With economic changes, tighter lending restrictions, and climbing home prices, things continue to shift and evolve in the world of real estate. Fortunately, new resources, clever technology, and lending programs that don’t require a down payment such as a loan with Down Payment Assistance program or veteran’s loan, makes this one of the most exciting times for prospective homeowners. Navigate the ever-evolving real estate landscape with a realistic new home budget and be prepared for costs associated with obtaining your ideal home, from your down payment to your maintenance costs.

 

Determining Your Budget

The most common rule of thumb is to calculate a percentage of your income toward paying your mortgage and use that amount as your home-buying budget. Buyers in every stage of life should be aware of specific financial situations, from student loan payments to saving for retirement. Be sure to consider these obligations and your mortgage to determine what you can realistically afford before creating your new home budget.

 

Calculating the Ideal Home Price

So you have a general percentage of your income in mind, but you’re still wondering, “What should my budget for a house be?” To calculate your home price, begin with your annual income and take into account other obligations, such as your car loan or student loans and any credit card debt you may have.

Most lenders put together a debt-to-income ratio (DTI) to weigh all these factors, which compares your monthly debts, including your potential mortgage amount, with your monthly pre-tax income. Reverse the DTI process by taking your gross monthly income and multiplying it by .28 (28%), and you’ll arrive at a monthly mortgage amount your budget can afford.

 

Assessing Your Financial Situation

Your lender only takes into account your present financial situation but may not be aware of various details that could impact your monthly budget, such as planning to start or expand your family, private school tuition, retirement savings, or personal savings goals like saving for a trip or a new car purchase. Consider these more personal aspects of your finances, keeping in mind any other financial priorities to maintain a healthy and realistic budget for your home.

 

Adjusting Your Spending Habits

Whether the mortgage budget you’ve calculated is smaller than you’d hoped or you want to ensure you’re allocating the most amount possible toward your dream home, consider adjusting your spending habits.

Adjustments to your spending can be made by either reducing costs or increasing income. Reducing your spending might include anything from small changes like packing lunch or skipping those pricey daily lattés to more dramatic spending cuts like downsizing your car payment or cutting back on entertainment expenses.

 

Budgeting for Homeownership Costs

Don’t neglect to take into account the costs associated with home ownership. Property taxes, homeowners insurance, utility bills, and home maintenance costs are additional expenses many buyers might not be accustomed to paying but are crucial in your budget.

 

 

Tracking Your Budget

Once you have a realistic idea of what your new home budget looks like, maintain it by tracking your spending and planning for unexpected financial burdens. To help keep tabs on your budget, employ any of the many resources available, like clever apps to monitor your finances or utilize multiple bank accounts to keep your spending separate from your savings. Spreadsheets also make a helpful visual aid to help you realize the impact small purchases can have on your budget and cause you to think twice before swiping your debit.

Explore our homeowner resources to equip yourself with more knowledge about the process. With information and forward-thinking, you can create a realistic home budget and ensure financial success in your home-buying journey.