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Home Buying Season: 3 Tips for Identifying Your Budget

Home Buying Season: 3 Tips for Identifying Your Budget
Affinity Federal Credit Union Mortgage Red Flags Blog
By: Carolyn Morganbesser
AVP Mortgage Originations

May 9, 2023

Deciding on your home buying budget is a deeply personal decision and unique to your situation. Even if you earn the same amount of money as a friend that recently bought a house, your budget might be different. So where do you start?.

You might have started your search using an online calculatr1, or by contacting a real estate agent. These are helpful steps in the process, but the most important first step is to consult a trusted loan officer2. A loan officer can help you determine the loan amount that meets your budgetary needs.   Your mortgage loan officer will then help you apply for a pre-approval.  This is a crucial step in the home buying process. A preapproval confirms that your income, assets, and debts have been reviewed by an underwriter and that you are preapproved for a mortgage loan. This helps you show sellers that you are a serious buyer and strengthens an offer.

The difference between working with a loan officer and receiving a prequalification online is the level of verification around your income, assets, and debts. A loan officer will work with you to determine not just what you are qualified to spend but also what you are able to afford, based on your lifestyle and non-debt expenses. It’s important to keep in mind the amount you are qualified to borrow doesn’t mean that’s what’s best to spend. There are a couple things to consider that will help you identify your ideal monthly payment and ultimately your home buying budget.

  1. Do you have any current or upcoming expenses that will affect your budget? A mortgage loan estimation will only take into account your debt-to-income ratio (DTI). This can be credit card minimum payments, student loans, car loans and other debts. Expenses not calculated into your DTI include childcare, retirement contributions, healthcare premiums, insurance and taxes. It’s important to discuss with your loan officer if you have current or future daycare expenses, contribute to retirement accounts, or pay any other expenses that could influence your monthly budget.
  2. Consider taxes and insurance, not just the price of the house. Once you know what you are comfortable spending monthly, you can start to get an idea of what price range you are able to afford. The local taxes in the areas in which you are home shopping can greatly affect the amount of house you can afford since taxes are paid monthly to an escrow account. Local taxes can differ greatly and be affected by things like homestead exemption and abatements. The same goes for insurance. Since some homes require additional insurance coverage like flood or windstorm, it’s important to know what is needed for the property. Older and newer homes can also vary widely in the cost of homeowners insurance so having some basic estimates in mind can help you understand the rough cost.
  3. Use your resources to your advantage. Through your home buying journey, you’ll have a team of experts to help you. This will likely include a real estate agent, mortgage loan officer, insurance agent, inspectors. It’s important to direct your mortgage and budget-related questions to your loan officer to ensure that you receive accurate information. Your real estate agent can help you reference tax information and zoning rules that can affect insurance costs.

While it may seem like there are many factors to consider, your journey to home ownership can be made easier by leveraging the resources available to you at Affinity3. We are here to help you navigate the process from start to finish, including helping you meet savings goals for a down payment and budgeting advice. To kick off your journey you can speak to an Affinity mortgage expert on the Affinity website4.

This information is for informational purposes only, is intended to provide general guidance, and does not constitute legal, tax, or financial advice. Each person’s circumstances are different and may not apply to the specific information provided. You should seek the advice of a financial professional, tax consultant, and/or legal counsel to discuss your specific needs before making any financial or other commitments regarding the matters related to your condition.

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