Blog posted On February 28, 2025
Buying a home is an important decision, one of the biggest an adult can make. Everyone deserves a roof over their head, a happy house to come home to after a long day at work. We’re here to provide some handy tips and tricks for budgeting for your new mortgage, especially if you’re a first-time buyer. Every hopeful homeowner has to start somewhere, so why don’t we dive into some easy strategies, step-by-step, to get you started?
Step 1: Calculate Your Annual Income
Your annual income includes your salary, bonuses, freelance gigs, and any other avenues of income. If your income fluctuates year to year, just take the average of your earnings from the previous year. Make sure that you’re keeping track of your contracts and pay, especially if you’re a freelancer/self-employed borrower.
Step 2: Add Up Your Annual Expenses
Now that you’ve added up your income, you’ll want to calculate how much you spend in a year. The more detailed you can be about this, the better. You’ll want to group your fixed expenses together first, such as rent, utilities, car payments, and phone bills. Next, list out your variable expenses, including groceries, gas, restaurant outings, and any other entertainment expenditures. This can also be beneficial if you want to cut down on how much you’re spending annually; you might discover that you’re paying for a streaming service you don’t watch anymore and can ditch those extra fees draining your bank.
Step 3: Set Financial Goals
Much of this advice can apply for a general budget. However, since you’re specifically saving for a mortgage, you can tailor this pretty easily. This biggest hurdle of homeownership is the down payment. We do offer many down payment assistance programs, including options that are state and city specific. VA and USDA Loans offer 100% financing for qualified buyers, so it helps to do your research. You’ll also want to save for closing costs and any other fees that will be on your final closing disclosure. The next step will be super helpful when calculating these costs specifically.
Step 4: Get Preapproved!
Getting preapproved is more important now than ever. Don’t let yourself fall head over heels for a property before understanding how much home you can afford. A preapproval allows you to set realistic boundaries on your house hunting process, and it will also let you see how much you need to set aside for a down payment.
Step 5: Create an Emergency Fund
Even when all’s said and done, you should consider an emergency fund. As many homeowners know, you can’t predict when the unexpected happens, whether the furnace completely blows out or a tree falls against your roof during a storm. Sooner or later, something will break and you’ll be glad you set aside some cash just in case.
Step 6: Implement and Track Your Spending
Now it’s time to put your budget into action! This is where your thoughtful planning and calculating comes together. With your fixed and variable expenses organized, you’ll be able to see how your income and spending line up. You can use the 50/30/20 budgeting plan, which places your spending into three categories: 50% needs, 30% wants, and 20% savings. You can tweak this to fit your circumstances and increase the savings percentage, especially if you want to buy your home sooner rather than later.
Another home buying budget plan is called The 28% Rule. The rule dictates that your mortgage shouldn’t be more than 28% of your gross income each month. FHA allows a little bit more leniency, citing a 31% percentage. All it comes down to are a few questions: what spending habits do you need to curtail as you’re monitoring all this? And are there other debts, like student loans, that you can pay off before taking on a mortgage?
Are You Ready?
Now that we’ve laid out some potential home buying strategies for you, the ball is in your court. Don’t let the American dream of homeownership lull you into thinking you’re ready when you’re not. You have to be smart about taking on a mortgage by first understanding what’s in and outside of your affordability zone as a future homeowner. We offer complimentary consultations should you desire additional mortgage advice. We’re here to help hopeful homeowners like you, always!
Source: Investopedia, Forbes
