The process of homebuying is comprehensive. It is also slightly different from buyer to buyer. But one of the most important things about buying a home is planning a budget. Everyone operates on a budget of some sort.
If you aren’t quite sure what your budget is, there are a few helpful tips that can help you identify what your budget will be.
The 28% Rule
If you aren’t quite sure where to start with your homebuying budget, start with the 28% rule. This dictates that a home mortgage should be no more than 28% of your total gross income for the month.
There are some who say that 31% is realistic as well but don’t forget that you have other financial obligations. By determining how much of your monthly budget you can dictate to a mortgage, it means finding out what your true budget is.
Consider Other Expenses
Although the preoccupation is generally with getting approved for a loan, there are more things to consider than just that. A mortgage is not the only recurring expense that comes with owning a home. There are other repairs, maintenance costs, and utilities to consider.
Maintenance, for instance, can equate into shoveling snow, cutting the lawn, and anything else that goes into keeping the appearance of the home up. Property taxes are another part of owning a property that are worth considering when crafting a budget.
The Down Payment
Lenders will generally want homebuyers to pay at least 20% of the purchase price before financing the rest. That is not to say that they won’t approve borrowers for less than 20%, but that is the general rule of thumb.
Anything less down than 20% means having to pay for private mortgage insurance. That goes into the monthly mortgage and can wind up being anywhere from 0.5 to 1% of the total loan amount. It can mean the difference between thousands in the long term and saving that money by paying a little more up front.