If you’re a first time home buyer, the next few months of your life are going to pretty exciting–and probably pretty scary too.
Before you even start looking at available houses–or even your options for loans–you need to figure out exactly what you can afford. Saving for a new house takes a lot of preparation and legwork.
You’ll have to spend some time scrimping and saving to pull things together, and the easiest way to know that you’re on track is by creating a sound household budget.
So before you start shopping around on Zillow, check out our beginner’s guide to putting together a budget as a first time home buyer. Before you know it, you’ll be relaxing in your new dream home.
Creating a First Time Home Buyer Budget
It’s the dreaded “B” word: budgeting.
Even though it might sound terrifying, putting together a budget can actually take a lot of the anxiety out of your home buying experience. Budgeting is really just creating a plan for your money.
Once you have a concrete plan of action, you can start taking steps towards your next financial goal. Just by being more intentional with where you put your money, you can open up all sorts of new opportunities.
But how do you determine your budget as a first time home buyer? Let’s get into it.
1. Evaluate Current Budget
Before you even consider buying a house, first take a look at your current budget. To pay for your first home, you’ll need a steady job, good credit, and a decent amount of money to put down for a down payment.
Use your credit wisely, pay down all your debts, and make your payments on time. It might take a few months, but building up your credit score can save you a lot of money in the long run.
2. Know Your Price Range
Now it’s time to factor in all the expenses that you think you’ll have.
Make a list of what you’re looking for in a house and narrow down the neighborhoods you’d prefer. Then you can start looking at your housing options. Be realistic with your expectations. You’ll never find the perfect home–and there are always compromises that need to be made.
Once you find houses that you’re interested in, make note of the price range. How high are you willing to go? How low? What can you afford?
Don’t forget to factor in the additional costs. If you’re hiring a realtor, you’ll have to pay them a percentage too. You’ll also have to think about property taxes, insurance, and repair costs.
3. Document Your Spending
For most people, a house is the biggest payment they’ll make in their lifetime. The idea of mortgage can be pretty scary, and not everybody can afford a down payment right away.
It’s best to put down the biggest down payment possible. Not only will this help keep you from going underwater on your mortgage, but it can save you money in the long term.
Take a moment to write down how much you’re earning and spending each month–and what you’re spending it on. Here are some ways you can cut back and save:
- Food. Watch how much you spend eating out, and take a look at your grocery spending to see where you can cut down
- Entertainment. Try bundling your cable and internet or finding a cheaper plan–you can even turn to cheaper streaming service like Netflix or Apple TV
- Bills. Keep a close eye on your energy and water usage in the home
- Extras. Stick to the 24-hour rule: If you want to buy something, wait 24 hours before you decide to follow through
Once you’ve established the ways you can cut back on current spending, make a budget for your daily and monthly expenditures. Set aside an amount you want to spend on necessities, wants, and more.
Then, set aside an amount you are hoping to save. This will help you put money away towards a large down payment.
If you’re still looking for ways to make extra cash, try renting out a spare room (or even your backyard) on sites like Airbnb. You can also make a little more each month by filling out surveys or taking up a side hustle.
4. Make a Plan of Action
Based on your price range, how much do you expect to put down as a down payment? Keep this number in mind as you start budgeting.
Put down your expected expenses–now that you’ve cut down costs as much as you can–and look at what you have left. Take as much of that as you can and set it aside for savings each month.
Then, calculate how long it will take before you have enough for the down payment that you’re looking for. Even after the down payment, make sure that you’ll have enough for the monthly payment for the mortgage.
Write this budget out for yourself and keep track of how you’re making progress. Set goals for each week and each month–and try your best to stick with them.
The Bottom Line
Just remember, once you have your budget planned out, it will still take time before you’re where you need to be.
Buying a house as a first time home buyer takes time, effort, and energy. Be patient, work on your credit score, and keep saving wherever you can.
Before long, you’ll be picking out the decor for your brand new home.
Looking for more financing tips? Check out our blog for more resources and helpful advice.