Budgeting for a home purchase can seem daunting, but with the right planning and preparation, it can be a smooth and manageable process.
Whether you’re a first-time home buyer or an experienced homeowner, these tips can help you stay on track and ensure that you’re making smart financial decisions on your path to homeownership.
1. Determine your budget and stick to it. Start by calculating your monthly income, expenses, and debt, and set a realistic budget for a monthly payment (hint: take a look at your rent). Factor in future costs like home maintenance and commuting costs. By setting a budget and sticking to it, you’ll avoid overspending and ensure you can afford the home you want.
2. Save for a down payment. A down payment is a crucial part of buying a home, and the larger the down payment, the lower your monthly mortgage payments will be. Don’t freak out! It’s a myth that your down payment needs to be 20% of the purchase price. The average down payment amount in NY last year was $34,998 and in NJ it was $29,500. Depending on your income, you may be even eligible for an FHA loan which requires 0% down. Set a savings goal and a plan to reach it, whether it’s through cutting expenses, finding additional income sources, or both.
3. Get pre-approved for a mortgage. Getting pre-approved will give you an idea of how much you can afford to spend on a home, as well as help you secure a better interest rate. Lenders take pre-approvals seriously, so once you’re pre-approved, you’ll be in a much stronger position when negotiating with sellers.
4. Factor in closing costs. Closing costs include fees for things like appraisals, title searches, and legal services. Be sure to include these costs in your budget and factor them into your overall home-buying plan.
5. Consider the total cost of ownership, including taxes and maintenance. Property taxes and maintenance can add significantly to the cost of owning a home. ArkHomes uses public data to show you the estimated property taxes on each listing, so you don’t have to guess. Additionally, set aside money each month for maintenance and repairs so when inevitably something needs repairs, you have the funds to do so.
6. Be realistic. Buying a house is a long-term commitment, so it’s important to have a monthly budget that you can actually stick to. It’s a lofty aspiration to go from eating out every day to cooking everything at home. Be realistic with your capabilities and what categories you could feasibly save in.
7. Minimize debt. Less debt = more buying power. Work to pay off any high-interest debt and avoid taking on new debt before closing on a home. Don’t get pre-approved and celebrate with a new BMW.
8. Build an emergency fund. Life is unpredictable, so it’s important to have an emergency fund in place before buying a home. Aim to save at least three to six months’ worth of living expenses in case of job loss, medical bills, or other unexpected expenses.
9. Explore your loan options. Different mortgages have different terms, interest rates, and fees. Work with a Mortgage Advisor who understands your lifestyle and needs and work together to figure out what kind of loan makes sense for you. On that note…
10. Seek professional financial advice. Buying a home is likely going to be the largest purchase of your life – it’s always a good idea to seek professional financial advice. A skilled Mortgage Advisor or real estate agent will help you navigate the home-buying process and make informed decisions.
Budgeting to buy a home is arguably the most important step in your home-buying journey. A smart budget is the difference between getting to enjoy your home and it being a constant source of worry and stress. Following these tips will ensure you’re prepared for the journey ahead.
A great place to start your budget is Ark Homes. The budgeting tool walks through everything you need to consider to make a realistic budget… and then it shows you homes in the neighborhoods you’re interested in that fit your budget! You can save and edit your budget as much as you like. Then search for property listings in your desired area(s) and see how each listing will fit into your budget as a whole