The golden rule for buying a home is to never purchase a home you can’t afford. Even though your lender might be willing to give you a loan for a certain amount, every home buyer needs a budget to stick to when shopping for a new home. Buying a home that’s more affordable means being able to save money for the future, including retirement. However, what one buyer believes is affordable, another may find they can’t afford it. 


A house is one of the largest purchases you’ll ever make, so it’s important to find the right budget to ensure affordability. When getting pre-approved for a mortgage, you can understand what a lender believes you can afford. However, it’s up to you to determine if that number is accurate and how much you really want to spend on a house. Here are tips for budgeting while buying your first home. 

Learn the 28% Rule

Calculating your budget means taking into account many financial factors, including debt and income. The 28% rule dictates that how much you pay on your mortgage bill should not exceed 28% of your income before taxes. Some lenders are more generous about this rule and will allow you to take out a loan even if the mortgage is slightly higher than 28% of your gross income. However, if you have other debts, the 28% rule may still not be enough for you to afford a home. 


Mortgage lenders calculate your debt-to-income ratio when determining whether or not you qualify for a home loan, and if you do qualify, this ratio can help them determine how much to loan you. If your monthly mortgage payment is $2000 per month and you have $2000 in other expenses, your financial obligations equal $4000. Then, if you have a monthly income of $8,000, your debt-to-income ratio would be 50%, which is way too high for a lender to consider. 

Expenses Beyond the Mortgage

Being a homeowner comes with additional costs beyond your monthly mortgage payment. While you might not be able to anticipate every expense, such as the need for a new water heater or switching to clean energy, you can start to understand the different types of regular costs associated with homeownership. These costs include:

  • Insurance
  • Utilities
  • Repairs and maintenance
  • Property taxes


The expenses can eventually add up, making an affordable home less affordable the longer you live in it. When trying to determine your budget, don’t forget about the regular recurring expenses you’ll have to pay to maintain your home, especially if you add upgrades such as an outdoor kitchen.

Down Payment

Most people spend years saving enough for a downpayment on a home. Most lenders want you to pay at least 20% down on the purchase price of the home. However, there are a variety of different loan options that don’t require as high of a down payment. That being said, the lower your down payment, the more the house will cost you in the long run. If you pay lower than 20%, you’ll have to pay for private mortgage insurance (PMI), ultimately increasing your monthly mortgage payment. 


The total price you pay in PMI depends on your home, credit score, and appreciation potential of the property, so it’s always best to put as much down as possible to reduce the PMI. The more you pay upfront, the less you’ll pay over the life of the loan, which equals lower monthly payments. 


Additionally, the amount you have saved to put down on the home will influence the price of the house you want to buy. Ultimately, it’s always better to put 20% down to avoid PMI, so if there’s one house you can put 20% on and another you can only put 10% down on, and they’re both in good condition, it’s cheaper to buy the house that’s worth less. 

Closing Costs

Aside from the down payment, another cost you’re responsible for when taking out a home loan is the closing costs. Closing costs range from 2% to 5% of the home’s purchase price, depending on where you live. Therefore, if you buy a house worth $400,000, your clothing costs could be anywhere from $8,000 to $20,000. The more you’ll have to pay in closing costs, the less money you’ll have left over after purchasing a home. 

Pay Your Debts

You can buy a house no matter how much debt you have, as long as you’re making enough to cover your expenses and the mortgage payment. However, it’s easier to get approved by a lender if you pay off your debt before applying for pre-approval. Having a higher credit score will reduce your interest rate to help you save money on the purchase of a new home. 


Be Realistic

Ultimately, it’s best to understand how much you make before and after taxes before buying a home. Knowing your net income can help you understand how much you can afford to pay for a home. Once you know your net income, subtract all of your expenses. What you have left over is the highest amount you can pay on your monthly mortgage payment. Therefore, if you have $2,000 left over after subtracting your expenses from your net income, you can afford up to $2,000 on a mortgage. That being said, it’s best to avoid spending all of your income on your mortgage payments. Instead, aim for something that’s much cheaper so you can have some left over to put into savings. 


What this means is that you need to be realistic when buying a house. Shopping for houses online is fun, but there’s no reason to look at houses you can’t afford. Instead, buy a house that you can realistically afford without getting too stressed worrying about expenses or other emergency purchases that might come up after you become a homeowner.

Check the Market

Before you start the pre-approval process, you should figure out if now is the right time to buy a home. There are buyers’ markets and seller’s markets, and buyers should try to buy a home when the prices are fairly low because there are fewer buyers than there are sellers. Of course, depending on what you can afford, any market could be the ideal market for you. That said, if the property you want is priced higher than similar homes in the area, your research may be able to help you negotiate a fair price. 

Final Thoughts for Buyers

Mortgage lenders are thorough when deciding whether or not you’re deserving of a home loan. However, they don’t know your finances as well as you do. When it comes to buying or building a home, never spend more than you can truly afford, and always take your income and expenses into account. When purchasing a home, you should have at least three to six months of expenses saved after the clothing costs to ensure you can afford your home now and in the future. 


Julia Olivas

Julia Olivas graduated from San Francisco State University with her B.A. in Communication Studies. She is a contributing writer at where she loves sharing her passion for digital marketing and content creation. Outside of writing, she loves cooking, reading, making art, and her pup Ruby.