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Budgeting for Your New Home Purchase

Thinking of purchasing a new home, but not sure how much you can afford? Home affordability is good in the current economic conditions -- meaning, borrowers can typically purchase a larger or nicer home for a lower price -- due in part to declining real estate values and to low interest rates.

Really coming up with a concrete number requires planning out your budget and monthly expenses, but a good general guideline you can start wtih is that most experts recommend spending no more than 30% of your income on your mortgage or rent.

While this general guideline is a good place to start, it doesn't take into account your personal financial situation. For example, some families are making more loan payments, like vehicles, student loans or personal loans. Others tend to spend more on variable expenses and entertainment, like dining out at restaurants.

Follow this budget planning guide to help you determine how much home you can afford (based on a monthly payment). There are numerous calculators available online that can help estimate a monthly mortgage payment based on the purchase price of the home, interest rate and down payment amount. Consulting an Idaho mortgage lender is probably the best way to get more precise calculations for these amounts.

Remember, you'll still need to qualify for a mortgage through an Idaho mortgage lender. Your first step should be obtaining a pre-approval letter to give you an idea of how much you'd be eligible to borrow. From there, determine how much you can truly afford.

What You Need to Plan Your Budget

In order to plan out your budget, you should gather the following:

Add up all expenditures and the amount you'd like to save for the entire year. Divide by twelve. This will give you a fairly accurate estimate of your monthly expenses, taking into account savings for those periodic expenses like semi-annual insurance payments.

Compare this number to your monthly income. What's left? This amount is the approximate amount you'd be able to spend on a monthly mortgage payment. If it's more than 30% of your monthly income, you're in great shape -- but instead of using your calculated number, you should plan on spending 30% of your income on mortgage payments.

Wait! Don't forget about your new expenses.

Once you've settled on a home and plan to make an offer, you should take a few hours and repeat this budgeting process. Why? Because you're likely to have additional expenses you didn't consider in your original budget. For example, if you were renting, you didn't have to pay homeowner's insurance or real estate taxes. Your electric bill is likely to be higher if you're purchasing a larger home. Your Idaho mortgage lender can help you calculate these potential costs. You may not have had to pay for trash removal, or for heat. Be sure to find out what type of heating system the home has, and do some research to find out the average costs. Many MLS listings include an estimate of heating costs on the home's spec sheet -- or ask your realtor to inquire with the listing agent.