It’s a challenging time for first-time home buyers to enter the housing market. Mortgage rates have declined since last fall but stay significantly higher than they’ve been for over a decade. While the Federal Reserve has said that rates have peaked, there is no indication that they’ll notably decrease in the coming months. Additionally, there aren’t a lot of properties available, making it tricky to find a house that fits your criteria.
All is not lost though! With a knowledgeable realtor and helpful mortgage lender, you can become a homeowner. Most importantly, you have to understand your budget.
Here are five budget tips for first-time home buyers.
1. Assess your finances.
To start, gather all the information you can about your current financial situation, including your monthly income, savings, and debts. Look at your monthly expenses, like credit card payments, car payments, streaming services, groceries, and more. Look back over the past few months at what you’ve spent on entertainment and travel too. The more thorough you are, the more realistic your budget will be.
2. Determine what you can afford.
Now, it’s time to determine affordability. The 28/36 rule is a well-known guideline that suggests your housing expenses should not be more than 28 percent of your gross monthly income. Additionally, your debts — including your potential mortgage payment — should stay below 36 percent.
If you notice some debts or roadblocks decreasing your affordability, don’t lose hope! Now is the time to fix these problems or make changes to your financial situation before you begin house hunting.
3. Set a realistic goal for your down payment.
Many home buyers choose to put down 20 percent of the purchase price when buying a home, allowing them to have a lower interest rate or no private mortgage insurance. If that’s not feasible for you, there are loan options available to support a lower down payment percentage.
As you determine your down payment capabilities, you don’t want to put all of your savings into your down payment. Keep some funds handy for moving expenses, home repairs, and personal expenses. Set a number that suits your budget and your goals.
4. Consider closing costs.
Don’t forget closing costs when you're reviewing budget tips! They typically range from two to five percent of the home’s purchase price. This expense includes attorney fees, appraisal fees, title insurance, and other charges.
5. Find a mortgage lender.
Now that you know your budget, it’s time to bring in a professional! A mortgage lender can work with you as you prepare to buy a home, not just when you’re ready to make the purchase. At The Urban Dog Group, we work closely with Michael Dean of CrossCountry Mortgage. He helps to guide our home buyers to better understand their affordability, down payment options, and loan programs.
Let The Urban Dog Group help you with your real estate needs. Contact Christine Elias at caerealestate@gmail.com.