Budget Like You’ve Bought a House Before
Buying your first home is a major milestone. There’s nothing quite like the giddy rush that comes from knowing you could paint a wall fluorescent pink or cover the cabinets in peanut butter and no one could legally stop you. You’ve also got a new and quite big investment you need to maintain. Weighing the freedom against the responsibility is a delicate balancing act, and doing it successfully is a part of what being a homeowner is all about.
The reality of financially affording a home can be daunting, especially when it comes to figuring out where to start. First, invest time to make sure you can afford not just the monthly mortgage payment, but also the taxes and insurance that come along with the home.
A Rule of Thumb
The standard rule is to keep your monthly house payment (principal, interest, taxes, and insurance) at or below 28 percent of your gross income (before taxes). Don’t stretch yourself to buy a home you really can’t afford. If the monthly payment doesn’t fit within your current budget, adjust your expectations for a home payment that feels more comfortable with your lifestyle.
Do a Dry Run
If you need the additional comfort of affordability after analyzing your budget, try practicing making that payment for several months by stocking the difference between your current rent payment and expected house payment into a savings account. For example, if you currently pay $750 in rent and estimate a $1,000 towards a mortgage payment, then pay $750 rent payment and put the remaining $250 in a special savings account for three to six months. If you find it difficult to uphold your lifestyle or run short of money each month, then you may need to lower your desired purchase price. If you find it manageable to pay this amount each month, then you are probably ready to buy a home and now have a nice savings that can be used for closing costs or to cover unexpected expenses.