Budgeting is the most critical aspect of every purchase, especially a big one such as a house. Homeownership is one of the most significant investments in every person’s life – even those who can spend a bit more. That’s why proper budgeting is the first thing you need to do before you go house hunting. In this post, you’ll find out how to set a budget for buying your first home so that you don’t have to worry about overspending.

The importance of budgeting

Many people underestimate the power of creating a budget when buying a home – especially the first one. This step financially prepares you for the purchase, but it helps your mind as well. Once you calculate all the expenses, you’ll:

• Know exactly how much it costs to buy a home – this will help you face budget changes that will happen after you make the purchase;
• Focus on the goal and the savings – calculating the costs of the purchase will help you see your goal clearly, know precisely the pace of your payments and the reason why you’re doing it;
• Find out if you’re ready for the purchase, and prevent yourself from spending too much – once you set a budget for buying your first home, you’ll know how much you can afford and avoid overspending and creating additional financial problems in the future.

All in all, preparing carefully for such a step will surely help you consider all the purchase and maintenance costs, defining your financial stability even better.

Make sure you understand the numbers well, so you don’t have to deal with financial problems in the future.

Ways to set a budget for buying your first home

Setting a budget for purchasing a home should include several steps. Let’s see how to do it, so you don’t have to worry about spending too much but still get the best home for the money.

Start with the basic rule

There’s a basic rule of home buying that states you should spend no more than 28% of your earnings on the mortgage. However, this can vary, especially if you have some other debts to consider in your budget. You should have a good debt-to-income ratio so lenders will give you money. The highest number they don’t go over is about 40%. So, the bottom line is, don’t spend more than 28% of your gross income on the mortgage payments, and include other debts so the total debt doesn’t go over 36%. This makes the famous 28/36 rule, which has proven to be very efficient in budgeting.

Additional expenses

Apart from the property’s price, there are other numbers you should count into the budget. As you haven’t owned a home before, you might forget about additional expenses such as – maintenance costs, utilities, insurance, HOA fees, repairs, and property taxes. These can vary depending on your location, the size of your home, and other factors, but you should definitely take them into consideration. Buying a home is just the first step to homeownership.

Include all the costs to set a budget for buying your first home properly.

The down payment

Another thing buyers worry about is the down payment. This number depends on your credit score, type of loan, and, of course, the price of the home. However, down payments are commonly between 3 and 20% of the total cost of the house. You should also know that the larger your down payment is, the more chances you have to avoid PMI – private mortgage insurance required by some lenders. This can cost you from 0.5% to 1% of your loan, so it’s best to avoid it if possible. Saving more for the down payment pays off in the long run.

The closing costs

Apart from the down payment, you should also consider the closing costs. These can reach 5% of the home price, so it can be a problem if you’re not ready. Closing costs include loan origination fees, appraisal fees, title searches and insurance, credit report charges, taxes, etc. Make sure you investigate these with your agent, so you’re ready once the time comes to pay.

The escrow

Homeowners should have a mortgage escrow account that will hold their insurance premiums and property tax payments – it’s like a savings account for homeowners. Your lender will probably require you to have an escrow account and pay reserves that are two months’ worth.

Moving expenses

Finally, we come to the last step of buying a new home – moving. With all the purchasing expenses we previously mentioned, buyers tend to forget the costs they need to pay for moving. Depending on the size of your household and your location, these can add up.

A home that you can afford will ensure you can truly enjoy it.

Moving services

Let’s face it – hiring professionals to move your items is the safest way to move. By doing so, you minimize the risks of damaging some of your delicate pieces, and you don’t’ need to deal with your robust piano alone. Moving pros have all the skills and tools necessary to move your items smoothly to your new home.

Packing supplies

If you have many items to pack, make sure you get enough packing supplies. Even though these are not too expensive and there are ways to get some for free, you still need to count them into your moving budget.

Traveling costs

If you’ve bought a house that’s in your current neighborhood, you don’t need to worry about these. But if you’re moving to another country or state, include traveling costs into your budget. Safely arriving at the destination is the final if you want to set a budget for buying your first home, so be sure to do it right.

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