How Much Do You Need to Buy a House?

We often hear First-time home buyers ask their friends, family or coworkers the question: How much do you need to buy a house? Learning how to set up a budget is one of the first steps in the home-buying process. Buying a new home hinges on your finances. The bank will be examining your earnings and savings in order to decide what interest rate to charge you as well as what amount they're willing to lend you. Although you might qualify for a first time homeowners program that requires a minimum down payment, you'll still need to establish a budget when buying your first house and obtaining your first time mortgage. After asking yourself "what kind of house can I afford," you can begin to develop a plan, set up a budget, and begin hunting for homes you can afford.

Ideally, 20% of the home's asking price is the rule of thumb when it comes to down payments. Even as you go in to apply for pre-approval, the lender will want to know how much down payment you plan to put down on a potential home. Of course, 20% can be pretty steep for the first-time home buyer. If you're buying a house for the first time, you may have to save for that 20% for quite a while. With 20% down, you're likely to get a great interest rate from your lender, and that can play into your monthly mortgage payment.

How Much Do You Need to Buy a House?

If you can't wait to buy a house but don't have 20% to put down, you may consider putting down less. Did you know that you can actually buy a home with 3% down? There are things to know when buying a house and down payments are one of them! Of course, there are cons with a 3% down payment. You may be looking at a higher interest rate. You might have a much costlier monthly mortgage payment to make. You might be paying on that house for the next 30 years—much of which is going to be interest. Even so, ask your mortgage lender or real estate agent about first-time home buyer programs. If you qualify, you may be able to put down a very small down payment when buying that first house.

What Kind of House Can I Afford?

Just because the bank is willing to finance a home for $300,000 doesn't necessarily mean you can afford it and still enjoy the lifestyle you want to enjoy. Think about monthly expenses and annual expenses you are obligated to pay. The lender examines your down payment, savings, assets, credit, and salary, but they don't necessarily know that you have a thing for new cars or annual vacations. Be realistic about how you live. You don't want to be in a house that you can barely afford or it will detract from your lifestyle. Set up a proposed budget. Figure in your potential mortgage payment and all other expenses. Then determine if this arrangement will work for you.

What Kind of House Can I Afford?

Set Your Budget for Your First Home

Just because the bank is willing to finance a home for $300,000 doesn't necessarily mean you can afford it and still enjoy the lifestyle you want to enjoy. Think about monthly expenses and annual expenses you are obligated to pay. The lender examines your down payment, savings, assets, credit, and salary, but they don't necessarily know that you have a thing for new cars or annual vacations. Be realistic about how you live. You don't want to be in a house that you can barely afford or it will detract from your lifestyle. Set up a proposed budget. Figure in your potential mortgage payment and all other expenses. Then determine if this arrangement will work for you.

More Tips for Setting up a Budget

From budgeting for a down payment to budgeting for life in a new home, you'll need to do a lot of calculating. Use a first time home buyer budget worksheet to help you map out a plan. You can also find budget for buying a house calculator and mortgage qualification calculator online. These tools and your real estate agent can help you create budgets for every aspect of the home-buying process. The more honest you can be with yourself about your finances, the more accurate your budget will reflect your lifestyle. That's the key to making your house-buying budget work.

  • Down payment
  • Earnest money
  • Inspection
  • Closing costs (Closing costs typically range from 2 to 5 percent of the purchase price. Included in the sum are title insurance, loan-processing costs, appraisal, attorney, taxes, and various other fees)
  • Prepaid expenses
  • Cost of physically moving
  • Utility adjustments
  • Cash reserves
  • Cost of starting life in a new house (furnishings, appliances, decorations, utility connection fees)

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