How to Set a Budget for Buying a Home

Before you start looking at houses you may like to buy, you need to figure out your budget. But how can you know what you can afford? It’s important to consider more than just what you’ll be able to receive from a lender. You’ll need to assess your finances and ensure you’ll be able to pay all of your bills, including your mortgage and utilities, without accumulating debt. Here are a few tips to get you started.

Use the 28 Percent Rule

A basic way to calculate your budget for a house is to use the 28 percent rule — mortgage brokers often use this as a starting point. The rule states that no more than 28 percent of your gross income should go toward your mortgage. This is a good start, but it’s too simplistic to rely on entirely, since there may be other aspects of your financial situation to consider, including debt and other payments you need to make on a regular basis.

Calculate Your Expenses

Speaking of other payments, these should be the next part of your calculation. Consider all the expenses you currently incur, plus any new expenses that will come with homeownership, such as homeowner’s insurance, property taxes, and maintenance.

Consider Your Down Payment

Another general rule to follow is that your minimum down payment required is 5% of the purchase price, and to avoid additional default mortgage insurance, you require 20% of the purchase price. Once you’ve figured out your expenses, you should be able to calculate how much you can afford to put toward a down payment.

Research What You Can Find for the Price

You should now have a clearer idea of what you can afford. Start researching houses that you may like to buy within that price range. Consider how much you’d likely spend in upkeep, repairs, and utilities for these properties and use this to finalize your budget. If you want a fixer-upper, it’s worth talking to a construction professional for an estimate about how much repairs would likely cost.

After you’ve figured out how much you can afford to pay for a home, it’s time to find a mortgage broker. Edmonton homebuyers can rely on Flare Mortgage Group to provide you with a mortgage plan designed with your lifestyle in mind. Call us today to take the next step in your journey toward homeownership.