Homebuyers, Learn how to set a realistic homebuying budget today. It will make tomorrow’s living expenses possible. There are so many layers to home buying. Before you start:
- Go through a list of where your finances are.
- List out your living expenses.
- Include room for closing costs.
- Factor in the unknown. This will help you estimate what mortgage payments you have room for.
That helps narrow down what available homes to look at. Your real estate agent can help you find a home that meets your needs and stays within your budget. A little extra work upfront simplifies the process.
Homebuying Budget & the 28% Rule
If you’re unsure where to start, consider using the 28 percent rule. This method means you set aside up to 28 percent of your monthly income. That 28 percent goes toward your mortgage payments. This rule leaves room for living expenses. It is a great place to start.
Homebuying Budget & Credit Scores / Interest Rates
Interest rates increase monthly payments. Check your credit rating. Did you know you can get a credit report from three credit reporting agencies? Yes, you can. Use Annualcreditreport.com. It lets you ask Equifax®, Experian®, and TransUnion® for one free report per year. Get your free credit score for free at CreditKarma.com. The higher your credit score, the less interest you will pay.
Homebuying Budget & Extra Expenses
Your mortgage payment is one expense. Day-to-day living expenses are a must-include for your budget.
- Utilities.
- Debt.
- Medical expenses.
- Home insurance.
- Mortgage insurance (for down payments less than 20 percent).
- Food & Gas
- Fun money
- Etc.
Utilities vary from state to state, county to county, and city to city. Double-check costs specific to the areas you are housing hunting in. Considering these extra expenses gives you a better idea of your homebuying budget.
Budget for the Unexpected
Homes are expensive to maintain. Roofs need replacing. Windows break. Appliances need replacing. The squirrel in the attic needs catching. You never know. Budget for 1% to 2% of a home value.
Let Your Real Estate Agent Help with Staying on Budget
You hired a real estate agent. Now, be honest with them about what you’re searching for in a home and the budget you have to work with. You save time by eliminating properties above budget. This also removes the temptation to spend more on a home than planned. Make sure to factor in closing costs, which often fall between 3% and 6% of home sale prices.
When budgeting, consider:
- What do you want?
- What do you need?
- How much financial room do you have?
Wishing you Happy House Hunting
This helps determine your homebuying budget. It enables you to know how much of a house you can afford. Work with your real estate agent. Work together. Craft a homebuying plan that encompasses everything you want for the right price.