How Do You Determine Your Budget When Buying a Home?

By Kyle Koller

Producing Branch Manager of UMortgage West - The #1 Producing Team at UMortgage

If you’re looking to purchase a home soon, there’s one thing you need to do before anything else: Determine your budget. As an experienced lender, I’ve seen too many buyers fall in love with a home only to find out it’s too expensive for them to afford. The only way to ensure you get the best house available while staying within your means is to know your budget before shopping. This begs the question, “How do you find out how much home you can afford?” To answer this, here are three steps you should take with your lender to figure out your budget before you hit the open market:

1. Calculate and assess your income. For most W2 employees, this is pretty simple. Your lender should be able to pull your income from your tax forms. However, this can be difficult for self-employed individuals or those paid by commissions. Your lender might have to look at your bank deposits, and you might have to use a non-qualified loan. While that sounds stressful, don’t worry; a quality lender can find your income even if you aren’t a traditional employee.

2. Add up your debts. Your debt-to-income ratio is critical when determining how much of a mortgage you can afford. Ideally, you want one lower than 43%. While some loan programs allow for a higher debt-to-income ratio, you need to meet this threshold if you want the best deal possible. If your ratio isn’t where you want it to be, work closely with your lender to find creative ways to lower it. This will free up potential debt for your mortgage.

3. Factor in your down payment and other expenses. Your budget isn’t just determined by your monthly payment. You also need to factor in other costs, the most important being your down payment. Contrary to popular belief, you don’t need to put 20% down; in fact, you can get away with as little as 3% if you qualify. However, keep in mind that the more money you put down upfront, the smaller your monthly payment will be. You also need to consider property taxes, which vary greatly by state. Make sure you work with a lender so that you don’t miss any potential expenses.

If this all seems a bit complicated to you, don’t worry. Call or email me, and I can go over each one of these items with you and find out how much home you can afford. I can even get you pre-qualified so you can see what your monthly payment would be. It’s all 100% free, and there is no obligation to hire me. I look forward to hearing from you!