How to Budget for Your New Home

new brick home from Essex HomesPurchasing a new home is an exhilarating journey that requires financial discipline and budgeting. The first step to budgeting is making sure that your credit report attests to your positive spending and borrowing habits. If not, then it will be difficult to secure a lender when you’re ready to purchase a home. Take these steps to improve your credit score from FICO, the credit score reporting company used by a majority of lenders.

Create and Analyze your Budget

Add up all of your sources of monthly income, and then add up all of your monthly expenses, which may include charitable gifts, savings, utilities, food, clothing, transportation, medical, recreation, personal expenses and rent (if applicable). It will be beneficial to review your credit card and bank statements. The difference between your income and expenses is your available amount for housing-related costs.

Plan for a Mortgage

Many mortgage lenders require the ratio of housing expenses be less than 28 percent, which means that your monthly mortgage payment must be less than 28 percent of your total income. Discover and other institutions offer online tools to help you find out how much mortgage you can afford to buy. You can also find out your estimated monthly mortgage payments with category options such as home purchase price, available cash for down payment, loan product, annual interest rate and other annual homeownership expenses.

Costs that are excluded from that 28 percent, such as related fees and taxes, include:

  • Routine or emergency maintenance
  • Flood, earthquake or other insurance packages
  • Homeowner’s insurance
  • Homeowner’s association fees
  • Personal property tax
  • Annual real estate property tax

Remember to Save

Making steady savings deposits several years before you intend to purchase a home would give you more financial security as you prepare to buy, and it can lead to decreased mortgage payments if you’re able to pay a larger lump sum for your down payment. Choosing an exact date for your home purchase is also wise because it will help you plan your spending around specific events leading up to that big day.

Update Your Budget After the Purchase

After you purchase your beautiful home and enter into a mortgage, remember to update your budget and reassess your income and expenses.

Be sure to understand how much you are able to spend on your home’s written costs and hidden costs while evaluating communities and homes. When you’re ready to begin the buying process, visit www.EssexHomes.net and we’ll assist you every step away until you’ve found your dream home!