If you’re in the market for a new home, it’s important to budget accordingly. According to a recent report by Zillow, the median home price in the United States is $226,000. If you’re not prepared to budget for a home at that price point, you could end up overspending and putting yourself in a difficult financial situation.
You want to buy a home you can comfortably afford without stretching your budget too thin. Here are a few tips to help you budget for your new home purchase.
1. Get pre-approved for a mortgage
Before you start shopping for a new home, it’s essential to get pre-approved for a mortgage. This allows you to see how much money you can borrow and the associated monthly payments. Getting pre-approved for a mortgage is also a good idea before you start negotiating with sellers. This way, you’ll know exactly how much money you have to work with.
Remember, you don’t have to go with the first lender you’re pre-approved with. It’s essential to shop around and compare rates from different lenders. This way, you can be sure you’re getting the best deal possible.
When shopping for a mortgage, knowing the different types available is essential. For example, there is the conventional mortgage, the most common type. It’s typically available with a down payment of 20 percent. The FHA mortgage is also available with a down payment of as little as 3.5 percent. There are also VA loans, which are open to veterans and active-duty military members.
Depending on your financial situation, you may qualify for a down payment assistance program. These programs can help you come up with the money for a down payment, and they’re often available through state and local governments.
2. Know your credit score
Your credit score is one of the most important considerations in getting approved for a mortgage. If your credit score is high, you’re likely to get a better interest rate. That’s why it’s essential to know your credit score before you start shopping for a new home. This way, you can be sure you’re getting the best deal possible.
If your credit score is on the low side, you can do a few things to improve it. First, make sure you’re paying all of your bills on time. This includes your credit card bills, student loans, and any other debts you may have. Additionally, you can try to get a credit limit increase from your credit card company. This will help improve your credit utilization ratio, which is a significant factor in your credit score.
Some people also choose to open a new credit card to help improve their credit score. However, you should only do this if you’re sure you can handle the additional debt. Otherwise, you could end up harming your credit score even further. Don’t open a new credit card unless you’re confident you can pay off the balance each month.
3. Save for a down payment
The size of your down payment will significantly impact your monthly mortgage payments. You’ll have a lower monthly payment if you can afford to put down a larger down payment. However, you’ll also have to come up with a more considerable sum of money upfront. For example, let’s say you’re buying a $200,000 home. If you put in a 5 percent down payment, you’ll need to come up with $10,000. If you put in a 20 percent down payment, you’ll need $40,000.
Saving for a down payment can be challenging, especially if you’re a first-time homebuyer. One way to make it easier is to open a savings account specifically for your down payment. Then, set up a monthly transfer from your checking account to your savings account. This way, you’ll automatically save for your down payment each month.
If you have trouble saving for a down payment, you can do a few things. First, you can try to get a gift from a family member. This can be a great way to generate the money you need without taking out a loan. Additionally, you may be able to get a grant from the government. These grants are typically available to first-time homebuyers and low-income buyers.
4. Create a budget
Once you know how much you need for a down payment and your monthly mortgage, you can create a budget. This will help ensure you’re not spending more money than you can afford.
To create a budget, start by listing your income and expenses. Include everything from your rent or mortgage payment to your groceries and entertainment expenses. Don’t forget to include things like your car payment, insurance, and any debts you may have.
Once your expenses are listed, it’s time to start cutting back. Take a look at your discretionary expenditures, such as entertainment and eating out, and see if there’s anything you can cut back on. You may also consider getting a roommate or downsizing your home to save money.
Saving for a new home can be challenging, but starting planning early is essential. By following these tips, you can make the process a lot easier. Just be sure to stay within your budget and don’t overspend. With some planning, you’ll be in your new home in no time.