First Time Home Buyers: Budgeting For Your Home

First Time Home Buyers: Budgeting

So you are in the market for your first home. One of the biggest challenges can be figuring out exactly how much money you should spend. Everyone knows the critical rule, “don't purchase more house than you can afford.” However, what constitutes "affordable" will differ from buyer to buyer. Remember, it's probable that a home will be one of, if not the largest single purchases you'll ever make.

Getting a pre-approval letter from a mortgage lender is the first step, however figuring out the sweet spot of affordability requires more than that. First-time buyers have a tendency to shop on the amount of their pre-approval. They do not take into account all the other expenses involved in home ownership. This miscalculation can set you up for financial issues. Below we’ll discuss a few of the key steps you can use to help budget.

The 28% Rule Can Get You Started

Here is one of the easiest ways to help you calculate your home buying budget, the 28% rule. This rule is simple, it says your mortgage shouldn't be more than 28% of your monthly gross income. However, do not forget that if you have other debts, say things like a line of credit or loan, you have to factor them into the mortgage payment to have a better idea of how much you can really afford.

Home Owning Expenses Beyond the Mortgage

Getting preapproved for a home loan is an important first step in the homebuying process, but you cannot stop there. Remember, a mortgage isn't the only recurring expense you’ll have. Owning a home comes with a lot of other costs, which buyers need to anticipate. These costs can include homeowners' insurance, utilities, repairs, maintenance costs, and property taxes. These expenses can add up quickly, making a home that seemed affordable on paper, pricey in reality. You need to include all of these costs, as well as other regular expenses, when determining how much home you can afford. Here is an example. Your $1,500-per-month mortgage payment may be doable, but then add $1,000 in monthly expenses, and suddenly your obligations have increased significantly.

Choose a Property You Can Handle

When trying to determine if you can afford a home, first-time buyers need to consider the condition and size of the property. This often goes overlooked. Remember, large isn't always good. Consider the costs of heating and cooling and how that can affect your budgeting. Look at utility bills for the properties you're considering, you can even have a contractor estimate what fixing it up could cost. If you're planning to do it mostly yourself, be realistic about what you can handle, both in terms of skill sets and time.

Here at Jump Realty, all of our agents put their customers' needs at the forefront of their work. They’ll give you honest advice on what course of action is best for you in their professional opinion. If you are a first time home buyer, we can get you in touch with great mortgage lenders and help you find the right home. All of our agents pride themselves on putting their clients' needs above all else. With offices in Windsor, Tecumseh, Kingsville, and Chatham, no matter where you are a Jump agent is ready to help. Please contact us for any housing needs and let us give you a better real estate experience!