How to Budget for Your First Home

by Karen Montgomery 03/22/2020

Photo by Olya Adamovich via Pixabay

You’ve decided to start the process of buying a home. Congratulations! Now it’s time to figure out how much money you have, and what you can afford. The goal is to avoid purchasing more home than you can afford, but those variables change. In September 2019, the average price of a new home was almost $363,000. As an average, that may sound a bit steep, especially if this is your very first home.

A home may be one of the largest purchases you make. That’s why it’s important to go in with a clear head and everything aligned. Here are a few tips on learning how to budget when you’re preparing to purchase a new home:

  • Start with the 25% rule

Your mortgage should not be more than 25% of your gross income each month.

  • Consider every source of income you have. That means if you have 2 paychecks each month, each one should be included. If you have side work, that should also be included. That will encompass your total monthly income.
  • Write down your monthly expenses and make sure you leave nothing out. That means your donations to charity, student loans, transportation/gas, movie night, coffee and everything else you spend on a monthly basis.
  • Once you have these figures, subtract the expenses from the income. That will help you determine the max you will be able to pay for your mortgage. It’s also important to have a place to set aside some money for repairs. As a homeowner, things happen.

Any existing debt you have should be eliminated if you can afford it. The lower your debt to income ratio when you start the process, the better off you will be. Additionally, you should save as much as you can for a potential down payment. Depending on the loan, that will be 10 to 20%.

The figures you come up with will give you a good idea of where you stand and is a good starting point for your initial meeting with a mortgage broker. It’s also a good idea to review the types of loans that you may qualify for and look at the requirements. That will give you a general idea of the amount of money you will need to come up with for a viable down payment.

Although things may seem complicated, once you get started, everything should fall into place. Your real estate agent or mortgage broker will be able to provide more insight once you get started. Take your time and don't rush the process. It will be worth your while in the end.

About the Author
Author

Karen Montgomery

Karen enjoyed her childhood and teenage years living on Boca Grande. Now, Venice is what she calls “home.” After a rewarding career in Nursing including Administration, she wanted to spend more quality time with her three children and found her way into Real Estate. Karen states, “I still feel like I still can take care of people as a Professional Realtor.” In addition to a degree in Nursing, Karen has earned an MBA. Since the beginning her Real Estate career in 2005, her clients testify she is informative and friendly and that’s why they return to her with their real estate needs. Her creativity and dedication are why her customers refer their friends, co-workers and family members to Karen when they need a Professional Realtor. Karen works hard for her clients and prides herself on being detailed oriented, keeping current with market conditions, finance programs, and future Sarasota County growth & development. Karen feels strongly that “It’s not just about a customer buying or selling real estate, it’s about assisting customers to make well-informed decisions.” Karen focuses on providing customers with the best experience possible in residential sales and rentals. Karen is a member of the National Association of Realtors and Florida Association of Realtors. You may contact her with your Real Estate needs on the Island of Venice at Anchor Realty of the Gulf Coast 941-786-9912 or [email protected]