Interested in purchasing a home? Use this simple guide to learn some of the most common budgeting tips and best practices before you make your purchase.
From net income and credit scores to monthly expenses and more, your finances can impact mortgage payments, down payments, and interest rates on your new home.
Check out these important tips to know as you build your budget and begin looking into loan options during your homebuying search.
One of the first steps in any homebuying search is understanding your financial situation.
Identify your monthly net income — sometimes known as take-home pay after taxes and other benefits — to see what you can afford to pay toward a mortgage each month.
A good rule of thumb, according to First Choice Lending Group: Borrowers should follow the 28% rule, which says that your mortgage payment — including principal, interest, taxes, and insurance — shouldn’t exceed 28% of your monthly gross income .
What is Gross Income? Your total income from all sources before taxes and other expenses are paid
An easy way to use the 28% rule is by calculating the maximum mortgage payment you can afford .
Simply multiply your monthly gross income by 0.28:
Monthly Gross Income = $5,000 $5,000 x 0.28 = $1,400
With this in mind, the 28% rule is only effective if you remain conscious of your spending outside of your mortgage payment. If your monthly gross income falls within the 28% rule but the remaining 72% of your budget is taken up by car payments and other expenses, you'll have no wiggle room for essentials like groceries, daycare, gas, and more.
Don’t make any large purchases or take out any additional loans! This includes everything from buying a new car to financing a fresh mattress. These purchases may seem harmless, but any new loan transaction paid for in installments can impact your credit score . A dip in your credit score can impact the interest rate on your loan or even jeopardize your ability to qualify for the loan. We recommend waiting until after closing before making these purchases.
The information presented here was valid at the time of publication. Legend Homes reserves the right to make changes at any time and without notice, and assumes no liability for damages incurred directly or indirectly as a result of errors, omissions or discrepancies. Buyer must independently verify and confirm information. Copyright © 2024 Legend Classic Homes, Ltd.
As a good rule of thumb, anything that can negatively impact your credit score should be avoided if you’re in the process of purchasing a home. This includes staying on time with payments on existing loans, including for vehicles and student loans. A missed payment can ding your score and (potentially) hurt your chances at securing a preferred rate.
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