1. Determine How Much You Can Spend
The first step in buying a home on your budget is determining how much money you can afford to spend on a monthly mortgage. An easy way you can figure your spending ability is to use the total combined household income for 1 week as your guide for your house payment. Some lenders will tell you to use up to 40 percent of your monthly income for your loan, but this leaves you with very little money for vehicles, kids, utilities, home maintenance and other increased expenses. You can create a budget by looking over the last several months of expenses and figuring out which expenses can be changed to increase the money you can use to pay the mortgage.
2. Count All the Costs of the Home
Many people use mortgage calculators to figure out how much their monthly house payments will be so they can get the biggest loan possible. You need to count the loan payment, property taxes, home owners insurance, neighborhood dues, and private mortgage insurance (PMI) in the total monthly payment. While you may have a loan payment of $900 per month, the other taxes and fees can take your payment well over $1,200 per month, a 30-percent increase. If you are building a home, you can't base the property taxes on previous years when the property was unimproved. A local Realtor should be able to give you a general idea of the taxes and fees paid in your area.
3. Buy Your Dream Home Later
When you buy a home on a budget, you might not be able to buy your dream home now. However, if you plan properly, your dream home may be just a few years away. Purchase a home you can easily afford in order to build equity for a few years. As your income increases, invest the excess money or use it to pay down your home loan. Sell your home and roll over the equity and investment money into a new home. By upgrading your home every 3 to 7 years, you may be amazed at the type of home you can purchase in 10 to 15 years.
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