How to Purchase a Home: Budgeting To Buy a House

January 20, 2022
Last updated:
April 4, 2022
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Ready to buy a house, but not sure how much you can afford? Understanding how to budget for a home purchase is the first step on the path to successful home ownership. Here’s how it works.

Your finances need to be optimized to the fullest to maximize your purchasing power. Budgeting your money in advance will help you give your Loan Officer a realistic picture of your ability to repay the loan. What your lender sees will impact your interest rate and loan terms, so getting all of your ducks in a row early on is key to getting a good deal on your mortgage. Start at the top, by figuring out if it’s really a good time to buy a house.

Evaluating the real estate market

Is it a good time to get into the real estate market? Home prices are high, true, but interest rates are low. If you buy now, you could save big on your monthly payment and over the term of your loan. However, be prepared for a stiff fight if you’re looking at homes in a highly desirable region. Even with home prices skyrocketing in cities like Seattle and Portland, there is still massive demand and you could find yourself in a bidding war.

Calculating your DTI

Your monthly debt compared to your monthly income is a valuable barometer of your financial stability. While a 28% DTI (debt to income) ratio is often referred to as ideal, most homeowners don’t have a DTI anywhere near that low, and you can still get approved for a home loan with a DTI over 40%.

To figure your DTI, start with your monthly income. Add up all sources of income and arrive at the total. Next, add up all of your monthly debts, including any monthly obligations (especially anything being reported to credit bureaus.) This can include housing expenses like your hoped for mortgage payment, and private expenses like personal loans, student loans, and credit card debt. Divide your total debt by total income and that’s your DTI ratio.

If your DTI is high, consider paying off a few smaller monthly obligations to lower your debts, or picking up a side hustle to increase your income. Optimizing your budget to lower your DTI is a good way to get a more favorable interest rate and a higher loan approval amount.

Tip: Enter your monthly debt, DTI and other relevant financial information into our mortgage affordability calculator to see what your monthly payment and anticipated payoff date could be.

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Improving your credit score

Next up: your credit score. Paying off debt can also help your credit score, but don’t close credit accounts or lower limits. You want to have low debt but available open credit to show you know how to control your spending and handle your money.

Go on a strict spending diet for the months leading up to your home purchase. Avoid making huge purchases, applying for loans, or opening new credit card accounts. You want to stabilize your credit score as much as possible. Make every single payment on time, and consolidate debt where possible.

Finding a real estate agent

The seller pays real estate agent commissions, so there’s absolutely no reason not to take advantage of what a real estate agent brings to the table when buying a house. An agent can help you figure out what your home buying budget is and narrow down your home search to houses inside the parameter.

Don’t forget that you’ll need to have cash set aside for your down payment and closing costs, as well as other expenses associated with the initial home purchase. Your real estate agent can work to negotiate with the seller’s agent and try to get them to give you credits that can be used to cover part of your closing costs. They may also be able to tell you about local programs that can defray your down payment.

Choosing a lender

The lender you choose will have an enormous impact on your home budget. Their evaluation of you as a credit risk will factor into the loan amount you can get approved to use as your home buying budget, your down payment and closing costs, your offered interest rate, potential discount points, and more.

Many mortgage lenders charge loan origination fees and add other hidden costs that can significantly reduce the budget you have to spend on home buying, closing costs and moving. You might see charges for loan preapproval, or for locking in your interest rate when you’re ready to make an offer.

At Sammamish Mortgage, we don’t charge traditional lender fees such as preapproval fees, loan origination fees, or rate lock fees. We also don’t pay our loan officers commissions, but instead give them a generous salary so they focus on helping you get the right loan instead of their own pocketbook.

Buying a house

Getting preapproved by a reputable lender and having a seasoned real estate agent at your side means you’re finally ready to get down to brass tacks. Narrow down the area where you would like to live, and start investigating neighborhoods that have the amenities you need and want.

Think about how much square footage you need, both now and in a few years. What about a yard? A postage stamp might be sufficient if you don’t have outdoor pets, but if you love animals you may need more room. A fancy kitchen might be important if you love to cook, but if you prefer to sip wine and nibble on fruit in the bath, a big tub might be a priority.

How much elbow grease can you add to your home buying budget? If you have the energy, a fixer upper might be a good deal, but make sure you have some extra cash lying around to defray the expense, because home renovation always costs more than you predict.

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Why Choose Sammamish Mortgage?

At Sammamish Mortgage, our salaried LOs specialize in helping you get the right loan, not just the biggest one. With our help, you can make the process of buying a house as smooth and effortless as possible.

Sammamish Mortgage has been in business since 1992, and has assisted many homebuyers in the Pacific Northwest. If you are looking for mortgage financing in Washington State, we can help you get preapproved. Sammamish Mortgage offers mortgage programs in Colorado, Idaho, Oregon, and Washington.

Contact a loan officer if you have any mortgage-related questions or concerns. If you are ready to move forward, you can view rates, obtain a customized instant rate quote, or apply instantly directly from our website.

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