10 Tips for Budgeting to Your Buy Your First Home

Stepping out of the rental world and into the realm of homeownership is a lot of things; stressful, exciting, worrisome, and even a little overwhelming. Part of the struggle first-time buyers face is when it comes to budgeting for your new home because there are just so many things that need to be considered! 

In this guide, we’re going to share our top tips that’ll help you budget for your first home without getting too overwhelmed!

1. Breathe

Although it’s a seller’s market in 92% of the nation’s market and the number of houses on the market are limited, don’t panic! Yes, interest rates are low right now and you may feel like you need to buy right now, but you need to carefully think whether or not you’re truly ready for homeownership.

2. Weigh the pros and cons of homeownership

You need to carefully consider the pros and cons of homeownership before diving in. Ask yourself things like: 

  • Are you capable of completing minor repairs if they arise? 
  • Are you willing to do yard work or will you hire a landscaper? 
  • Why exactly do you want to be a homeowner?
  • …so on.

3. Start saving ASAP

Long before you even start looking at houses, you’ll need to have a sizable amount of money for a downpayment. Although the ideal downpayment is 20% of the sales price, you could find programs where you could be asked to put down as little as 3% (which is still a nice chunk of change). The sooner you start saving, the better.

4. Figure out how much house you can afford

To figure out how much house you can afford, you’ll want to add up all of the monthly income your household generates. You’ll then want to add up all of your monthly expenses. You’ll want to divide your expenses by your gross income and this will give you your debt-to-income ratio. The highest DTI lenders will allow a borrower to have is 43%, but in our opinion, the lower the DTI, the better it’ll be for you. So, work on lowering your debt if you can.

5. Practice budgeting as if you’re a homeowner

Not only do you have to worry about utility bills and the mortgage, but you’re responsible for maintenance costs, homeowner’s association fees (if applicable), trash, water and other expenses that you don’t have to deal with as a renter. 

6. Monitor your credit and repair if needed

Credit score is important when you’re applying for a mortgage, as it will improve your chances of being approved for a mortgage and it’ll play a role in what interest rate you’ll receive. By monitoring your credit score, you’ll be able to look for derogatory marks, dispute anything that is wrong, and you’ll also see where your credit needs work. If you need help repairing your credit, you can work with a credit repair company or try to do it yourself depending on your situation.

7. Research mortgage options and interest rates

With your credit score in mind, you’ll want to research your options for a mortgage and research the interest rates for various lenders. There are first-time buyer programs that work with people with low scores, offer low interest rates, and won’t require a large down payment. Your real estate agent can advise you regarding your options (if you don’t know how to choose an agent, you can refer to this guide to finding a realtor).

8. Budget for closing costs

When it comes time to close on your house, you’re going to have to pay anywhere from 2% to 5% of the loan. This can be a significant amount of money! So when you’re saving for your down payment, you’re going to need to factor in closing costs. You can use a closing cost calculator to get an idea of how much you’ll need to have saved.

9. Hire a top-selling real estate agent

While you can use a home value estimator after walking through a house you’re considering putting an offer in on, your agent will have a better idea of whether the house is worth the asking price or not. Remember, your real estate agent is going to be your best friend during the home buying process because they’ll work hard to get you the best deal. 

10. You don’t have to spend every penny of your loan

While you may be approved for a certain amount of money, you don’t have to spend all of that money. If you prefer to err on the side of caution, look for a house that’s $25,000 less or so than the loan, just so you have a bit of breathing room! 

Deciding to buy a house is a big step and it’s not a decision you should make lightly. If you are at that point where you’re toying with the idea of buying, hopefully these tips will help you nail down the budgeting!

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Tim Spafford

Tim Spafford

Tim is a student who works hard to get a degree in finance and build a successful career in business consulting. Being a student and living in London Tim has a real-life experience in budgeting, saving, money making, traveling and having fun.