Learn How to Determine Your Budget For a House
Wondering how to determine your budget for a house? Buying a house is one of the most significant financial decisions you’ll ever make, so establishing a budget is crucial. For many first-time home buyers, this can be a difficult task.
Creating a home-buying budget involves multiple factors besides just the price tag of the house. If you want to make the most realistic budget possible, you’ll need to know what to expect. In this post, our team at Your Home Sold Guaranteed Realty — The Nathan Clark Team will discuss several factors to consider when deciding on your budget for a new home.
Evaluate Your Financial Situation
The first step in determining a budget for your house is to evaluate your personal financial situation. Unless you’re paying for the home entirely in cash, you’ll most likely need to take out a loan.
Lenders will look at several factors to determine what type of loans you qualify for. This includes your income, job stability, credit score and credit history, and debt-to-income ratio.
Your finances influence how big of a down payment you can make on your home. The bigger the down payment, the less you’ll need to borrow and the faster you can pay off your loan. This means your monthly payments may be smaller.
In addition, another factor to consider when establishing a budget is the cost of private mortgage insurance (PMI). A down payment of at least 20% means you won’t have to spend extra money each month on PMI.
When deciding how big of a down payment you should make, it’s generally a good idea to consider following the 28% rule.
According to most real estate experts, your housing expenses shouldn’t cost more than 28% of your gross monthly income. Aside from your monthly mortgage payments, this also includes expenses like property taxes, HOA fees, and any other housing-related costs.
Your financial situation also determines whether you qualify for a loan assistance program. For example, you may qualify for home loans through the Federal Housing Administration (FHA) or the Department of Veterans Affairs.
How To Determine Your Budget For a House
Consider Home Buying Costs
After you consider your personal financial situation, you should list out all of the costs associated with buying a home.
First and foremost is the asking price of the home itself. Depending on your realtor’s negotiation skills, this may or may not be the price you ultimately pay.
But aside from the cost of the home, you’ll also have to pay closing costs. While home sellers pay the most in closing costs, you’ll still have some costs to worry about as a home buyer. Factor these costs into your budget to get a more accurate estimate of what you’ll actually end up paying for the home.
These include the costs for:
- Home inspection
- Home appraisal
- Title search and insurance fees
- Underwriting fees
- Mortgage points
- Attorney fees
Ongoing Costs After You Purchase
Your budget should also include the costs you can expect to pay on the home even after closing. For example, property taxes and HOA fees.
And if you purchase a home in need of renovation, you’ll need to consider the cost of repairs. It’s a good idea to hire a contractor and get an estimate of the necessary work beforehand. That way, you know exactly how much the home will cost you in the long run.
Other costs of owning a home that first-time home buyers may not factor into their budgets include ongoing costs for maintenance, utilities, and lawn care. These costs will occur on a regular basis while you own the home, so it’s important to consider them when creating your budget.
Our Team Can Help You Buy a Home in New England
If you’re wondering how to determine your budget for a house, it doesn’t have to be complicated. Working with a professional realtor can give you an accurate picture of what homes in your market typically cost.
An experienced realtor knows all the costs typically associated with homeownership in your area, and they can help steer you towards homes within your budget. They can also refer you to a trusted lender who can give you a great deal on a home loan.
If you’re looking to buy a home in New England, Your Home Sold Guaranteed Realty — The Nathan Clark Team should be at the top of your list. We’ve been serving New England for over 21 years. This has given us in-depth knowledge of the housing market and the average cost most home buyers can expect to pay.
Our home buyer clients like working with us because of our exceptional customer service and extensive experience. On top of that, we offer several buyer’s guarantees that benefit home buyers, like our Exclusive Buyer Protection Plan and Buyer Cancellation Guarantee.
To learn more about working with our real estate team, give us a call at 401-288-3557 or fill out the form below for more information.