Buying a new home is a lengthy process with many interconnected steps. Whether you’re a first time home buyer or you’re looking to move into a better house, one of the most important steps you’ll take is determining what you can and cannot afford to buy. And to make that determination successfully, you’ll need to make a clear budget focused specifically on how much property and home you can and cannot afford.
Start With a Basic Budget
At its core, your budget for your new home is all about understanding the maximum monthly mortgage payment you think you can comfortably pay. To figure this out, there are several pieces of data that need to be factored in, reviewed, and calculated.
As you create your budget, make sure that you have this basic information:
- your yearly income
- monthly debts owed
- the down payment you expect to put on the house
Based on these three numbers, you can come up with a rough estimate of the maximum home price you can afford within your current budget.
Keep Going to Determine a More Accurate Budget
Once you have your basic budget, it’s time to get a more accurate and precise number to focus on and work around. To do this, you will need to take into account detailed information about the new home you are looking to purchase and the mortgage loan that would finance that property.
As you create this more accurate budget, you should consider:
- The down payment amount you will need
- The premium amount on the homeowner’s insurance for the property (premium will be determined by many factors about you, the property itself, and coverage levels chosen)
- The premium amount on flood insurance for the property, should flood insurance coverage be required by the mortgage lender
- The real estate taxes for the area into which you are moving
- Homeowner’s association dues (if applicable)
Don’t Be Afraid to Ask for Help
If you’ve shopped for a home before, you probably already know that even a self-determined budget is still just an official and limited answer. That’s because every step of purchasing a home can be complex, and often includes factors you forget or can’t predict. For example, besides the mortgage payment, there are several other fees and costs associated with owning a home that often go unnoticed until after closing on the home.
With that in mind, the only real way to figure out your true homebuying budget early in the process is to speak with a mortgage professional, as well as to work with a real estate agent. While mortgage experts can answer all of your questions, address your concerns, and help you prepare for any loans you need to complete your purchase, a real estate agent can keep you on-track during the entire home hunting process. Together, these two experts are sure to help you buy a fantastic new house – all within your budget!
Do you want even more information about how to purchase a home? We can help with that, too! We wrote the Essential Guide to Buying a Home and covered in detail all of the typical steps to buy a home. It’s full of articles, questionnaires, and tips to help you through this process from start to finish. Want your free copy? Download it today!