How much can you afford to spend on a home? That is the question that most people ask themselves when they are thinking about buying a home. It’s important to find the right size home for your budget. You don’t want to be house poor and struggle to make your mortgage payment every month. In this blog post, we will discuss how to choose the right size home for your budget. We will also provide some tips on how to save money when you’re buying a home!

How much home can you afford?

The first step in home buying is to get pre-qualified for a mortgage. This will give you an idea of how much home the bank thinks you can afford. The bank will approve the maximum they think you can afford. So if for example, they approve you for $400k, then don’t aim to buy a house for $400k.

The next step is to figure out your monthly budget. You need to know how much money you have coming in and going out every month. Once you have your monthly budget, you can start looking for homes in your price range. It’s important to not stretch yourself too thin when buying a home. You don’t want to find yourself in your dream house and have no money for anything else.

A good rule of thumb is that your mortgage payment should not be more than 28% of your monthly income. For example, if you make $5000/month, then your mortgage payment should not be more than $1400/month. This will give you enough money to cover your other expenses and have some money left over.

Now that you know how much home you can afford, it’s time to start looking for homes in your price range!

Searching for a Home

Use a home search website like Zillow or Redfin to start your home search. I used the MLS (multiple listing service) online to find my home. When you find a home you like, be sure to schedule a showing with the listing agent. 

You can also enlist the help of a realtor to conduct the search rather than do it yourself. Make your budget and needs known so they can help you find a home you can afford and will love.

When you’re ready to make an offer on a home, be sure to get pre-approved for a mortgage first. This will show the sellers that you’re a serious buyer and can afford the home.

Saving for a Down Payment

It’s important to have money saved up for a down payment on your home. A good rule of thumb is to have 20% of the purchase price saved up. For example, if you’re buying a home for $200k, then you should have $40,000 saved up for a down payment.

Saving for a down payment can be difficult, but there are some ways to make it easier. One way is to have a specific savings goal. For example, if you’re buying a home in two years, then you should save $1667/month for your down payment. Another way to make saving easier is to set up an automatic transfer from your checking account to your savings account. This will help you save without having to think about it.

Don’t have 20% to put down?

If you’re not able to save up 20% for a down payment, there are other options. You can get a home with a smaller down payment, but you will have to pay private mortgage insurance (PMI). This is insurance that protects the bank in case you default on your loan.

You can also look into government-backed loans like FHA loans. These loans allow for a smaller down payment, as low as three and a half percent. You will have to pay mortgage insurance with these loans as well, but it’s usually less than private mortgage insurance.

READ MORE: How to get rid of PMI without refinancing

Worried about your credit score?

If you’re worried about your credit score, there are still options available. There are home-buying programs available for those with bad credit. One of these programs is the home-buyers assistance program through the U.S. Department of Housing and programs available for those with bad credit. These programs can help you get into a home with a lower down payment and interest rate.

When you’re ready to buy a home, be sure to explore all of your options. There are programs available to help those with bad credit. And be sure to save up for a down payment so you can get the best interest rate possible.

What if You Can’t Afford to Buy a Home

If you look at your circumstances and after reviewing all the above you find that you still can’t afford to buy a home, don’t be discouraged. We all have to start somewhere. Now that you know you want a home, set a goal with a timeframe attached to it. For example, “I want to save $30,000 over the next two years”. 

Start from there and determine what you need to do to obtain that goal. In our example, $30K over two years means saving $1250/month. 

How are you going to save that much when you have already determined you can’t afford to buy a home? Are there expenses you can cut? Are you able to work overtime at your job? Or perhaps you’d like to do gig work or start a side hustle? 

Take the money you’re saving and put it in a separate savings account just for this goal. If you can, automate the process by having a portion of your income deposited in that account. If this is not an option, you can schedule recurring transfers to that account on the date you get paid. 

Happy home buying!

I hope this blog post has helped you understand the home buying process a little better. 

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