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Budgeting strategies for first-time homebuyers 

 June 15, 2021

By Scott Teesdale  

minutes read time

Common budgeting strategies for first-time homebuyers include paying off debt, saving for a down payment, getting preapproved for a loan, and saving for closing costs. If you’re a first-time homebuyer and you’re able to budget for all of these things then you’ll find yourself in a much better position to buy a home. Using a printable checklist specifically for first time buyers can help you figure out your budget.

While the previously mentioned factors are the most important budgeting strategies for first-time homebuyers, there are a few more things you need to consider:

  • What is a good budget for first-time home buyers?
  • How can a first-time home buyer save money?
  • What are the hidden costs of buying a home?
  • How do I get my first mortgage?
  • How do you buy a house if you have no money?

After figuring out the answers to these necessary questions, you should be one step closer to learning how much mortgage you can afford

What is a good budget for first-time homebuyers?

In general, the biggest expense for first-time homebuyers is the down payment which is typically around 10% of the price of the loan for the home you’re buying. Depending on the home you’re looking at, the average down payment amount on a home is 6% for first-time homebuyers, according to Rocket Mortgage.

While it is possible to only put down 3% on a home, this depends heavily on your credit score and the type of loan you’re applying for. In general, it’s a good rule of thumb to have 10% of your home’s cost as a down payment ready to go.

Additionally, closing costs are another expense that needs factored into the budget. Many people consider closing costs to be hidden costs because included in them could be appraisal fees, homeowners insurance, escrow fee, property taxes, pest inspection fees, and much more. For closing costs, you can expect to pay another 3%–6% of your total loan value.

With the down payment and closing cost combined, on average you can expect a good budget as a first-time homebuyer to be in the range of tens of thousands of dollars. 

How can a first-time homebuyer save money?

There are a variety of different budgeting tips first-time homebuyers can use to save money. The first tip is to start saving early. The earlier you start accumulating money, the less time you’ll have to wait to reach your financial goal.

Another early goal that will be important for first-time homebuyers who want to save money is deciding on how much you can actually afford. You can use a home affordability calculator online or talk to a lender to find out exactly how much you’ll be able to afford and what your budget looks like. From there, you’ll be able to determine a possibility of what your down payment and closing costs could look like and word toward saving for those goals.

Focusing on your credit score to buy a home will play a huge factor in deciding how much money lenders trust you with. The better credit score you have, the more money lenders are likely to let you borrow. In tandem with having a great credit score is also having little debt. If you can focus on building your credit score while removing debt then you’ll be able to stretch your money a lot longer and increase your budget.

Also, you’ll want to utilize different mortgage options. Depending on what you’re eligible for, you might be able to qualify for a type of mortgage that requires you to put less money down for a down payment. Or you might be able to qualify for lower interest rates. You have to do your research on which mortgage option is best for you.

One commonly overlooked secret is that most states offer mortgage assistance programs. Some of these mortgage assistance programs pay for some or all of a first-time homebuyer’s down payment.

What are the hidden costs of buying a home?

Besides closing costs, there are a few other hidden costs first-time homebuyers need to be aware of. Homeowners Association fees, or HOA fees, are one of the main hidden costs because it doesn’t apply to every new first-time homebuyer. If the house you want is in a community with a homeowners association then you’re going to find yourself paying these fees either monthly or yearly. That’s why it’s important to understand the value of a single-family home vs townhome vs condo.

Emergency repairs are high on the list of hidden costs that any first-time homebuyer should be aware of. If a pipe bursts after 6 months of living in your new home, you’ll be responsible for paying a plumber to repair it. It’s best to create a separate budget for home improvement costs. 

Utilities might seem like an obvious cost of living, but many new homeowners don’t take them into their budget. It can be a hidden cost even for homeowners that are aware of them because they might be higher than you originally thought they would when you decided to buy the home. 

How do I get my first mortgage?

Obtaining your first mortgage is a crucial step for first-time homebuyers to buy a house. There are a variety of ways to obtain your first mortgage. First, you’ll have to figure out which types of home loans first-time buyers qualify for

Next, you’ll need to contact a lender so they can evaluate your financial situation to see if you can be pre-approved and/or pre-qualified. The pre-approval process will look at both your debt and your income to determine how much home you can actually afford and how much the lender is comfortable lending to you. 

After you’ve been pre-approved, you’re all set. 

How do you buy a house if you have no money?

Believe it or not, there are options available for first-time homebuyers to purchase a home with no money down.

You can get a mortgage with no down payment by taking out a government-backed loan. These loans are insured by the government and tend to have much higher interest rates. These are VA loans and USDA loans. You must first find out if you qualify for these types of loans before you can apply for them.

There are realistic budgeting strategies for first-time homebuyers

The bottom line for first-time homebuyers is that there are realistic strategies you can use to budget for a home. You just need to be aware of all of the common mistakes of first time homebuyers and do your best to avoid them.

From hidden closing costs to saving for down payments, the more informed you are about the home buying process, the better it will go for you. Removing debt from your life and improving your credit score will also help push the home buying process forward more quickly. Make sure you consider all of the factors when choosing a mortgage that you’re eligible for and start saving early for a down payment. With a little luck and the right lender, the homebuying process could be quick and painless for you.

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I use data and technology to help Millennials navigate the ins-and-outs of buying or selling a home in today's market. From appraisals to mortgages to zoning, I cover it all with the goal to teach others. Connect with me on social via the icons above.

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