You\u2019re on the right track to get pre-approved if your finances fit the following categories:<\/p>\n
- \n
- 43% DTI ratio<\/b>
\nWhen it comes to your debt-to-income ratio, lenders typically don\u2019t want to see you putting more than 43% of your gross monthly income paying down debt<\/a>, including a mortgage, student loans, a car payment, or other obligations.<\/li>\n- 30% rule<\/b>
\nGenerally, if you can keep your housing expenses to no more than 30% of your gross income<\/a>, you\u2019ll stay in the comfort zone. Otherwise, you could risk overextending yourself.<\/li>\n- Credit score<\/b>
\nLenders will check your credit score to assess your likelihood of repaying the loan. You don\u2019t need a perfect score, but most loan programs require a score of 620 or better, and some FHA programs may go down as low as 580<\/a>.<\/li>\n- Down payment<\/b>
\nThe typical down payment for first-time buyers is around 7%<\/a> as of 2019. However, if your down payment is less than 20%, and you\u2019re taking out a conventional loan, then you\u2019ll likely need to factor in private mortgage insurance<\/a>.<\/li>\n<\/ul>\nYou should also account for other unexpected costs that can arise during the home purchase, such as taxes, maintenance, insurance, and HOA fees.<\/p>\n
\u201cIf you’re buying into a condominium or a single-family home that has a homeowner association, what are the fees and are they expected to go up?\u201d reminds Charron.<\/p>\n
If the hypotheticals are making your head spin, head to HomeLight\u2019s simple home affordability calculator<\/a>, then check out the real-life examples detailed below.<\/p>\n
![\"A](\"https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2019\/11\/how-much-money-do-i-need-to-buy-a-house-row.jpg\")
<\/a>Source: (BruceEmmerling\/ Pixabay)<\/figcaption><\/figure>\n Home budget case study #1: Jane\u2019s 1880 Pittsburgh rowhouse<\/h2>\n
When Jane made the decision to return to her hometown for a job in tech, she also knew she was one step closer to her dream of owning a house. The self-declared \u201chomebody\u201d was sick of a revolving door of roommates and wanted to start building up equity on a property.<\/p>\n
She\u2019d been saving for a home<\/a> for five years, and when she took a close look at Pittsburgh\u2019s real estate market, she realized that dream was more attainable than she thought.<\/p>\n
\u201cI’ve settled in Pittsburgh because I enjoy my current job and I\u2019m close to family,\u201d Jane told HomeLight. \u201cBut I also wouldn’t be able to afford a home like this in a different city.\u201d<\/p>\n
Pittsburgh\u2019s real estate market is starting to accelerate, but Jane had her eyes set on one of the more affordable neighborhoods that suited her needs. \u201cI love the neighborhood \u2014 it’s walkable, bus-able and bike-able to all of the parts of the city that I frequent.\u201d<\/p>\n
The two-bedroom home \u201cwas built in 1880 but has been updated. It maintains its old-fashioned charm, but is perfect for a young person to live in.\u201d<\/p>\n
A fan of frugal living and budgeting, Jane made sure to be conservative when it comes to monthly mortgage payments. She looked for a home where she could afford to make mortgage payments on her own but was also large enough that she could live comfortably with a roommate and save a few bucks.<\/p>\n
About Jane\u2019s home<\/h3>\n
Home type:<\/b> 1880s Rowhouse (2 beds, 2 baths)
\nHome price:<\/b> $269,750<\/p>\nUpfront costs:<\/h4>\n
Down payment (incl. earnest deposit):<\/b> 20% or $53,950
\nClosing costs (lender fees, transfer taxes):<\/b> 4% of purchase price or $10,790<\/p>\nOngoing costs:<\/h4>\n
Monthly mortgage payment (principal and interest):<\/b> $969
\nLoan term: <\/b>30 years
\nInterest rate:<\/b> 3.5% APR
\nProperty taxes:<\/b> ~$5,000 per year or $416 per month
\nHomeowners insurance:<\/b> ~$1,000 or $83 per month
\nAverage monthly maintenance:<\/b> n\/a
\nPrivate mortgage insurance: <\/b>$0<\/p>\nIncome and savings:<\/h4>\n
Gross Income:<\/b> $95,000 or $7,017 per month
\nAmount needed for upfront costs:<\/b> $65,000
\nAmount needed for savings cushion:<\/b> $20,000<\/p>\nTotal amount saved before home purchase: $100,000<\/span><\/h3>\n
Jane\u2019s monthly housing costs total to around $1,468, or 21% of her gross monthly income.<\/p>\n
![\"A](\"https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2019\/11\/how-much-money-do-i-need-to-buy-a-house-duplex.jpg\")
<\/a>Source: (Michal Jarmoluk\/<\/a>\u00a0Pixabay)<\/a><\/figcaption><\/figure>\n Home budget case study #2: Paige and Chris\u2019s Denver renovation-ready duplex<\/h2>\n
Paige and her partner Chris only recently wrapped up on renovations of the home they bought in Denver a year ago. When the couple moved there two years ago, buying a house wasn\u2019t even on their radar.<\/p>\n
But, after two years, \u201cwe witnessed the housing market explode,\u201d says Paige. \u201cWe quickly realized that the momentum Denver was gaining meant opportunity long-term. We both had five years\u2019 worth of savings and parents who were willing to help us be competitive in the market so we decided that we should invest as quickly as possible.\u201d<\/p>\n
Buying a house before the prices soared beyond their budget became a new priority. For Paige and Chris, it wasn\u2019t about finding the perfect home for their tastes, but a property that had high rental potential in the future.<\/p>\n
Not only could the couple live there now, but the right property could also come with a major payout in the future. A product marketer by day with a background in business, Paige turned to data and neighborhood trends to figure out how she could maximize her investment in a booming city.<\/p>\n
Her strategy was to hone in on the perfect location instead of style of home. Chris and Paige kept their search limited to trendy neighborhoods that were on the cusp of popularity, which meant a lower sales price and settling for a home that was not quite \u2018move-in ready\u2019 and needed some work.<\/p>\n
\u201cLuckily, one of us is handy, the other is visionary and neither of us on an actual timeline so we did not mind putting in renovation work,\u201d Paige and Chris told HomeLight.<\/p>\n
About Paige and Chris\u2019s home<\/h3>\n
Home type:<\/b> 1913 brick duplex, listed as 3 bedrooms, 2 bathrooms with showers (no bathtub), 1500 sq ft.
\nHome price: <\/b>$370,000<\/p>\nUpfront costs:<\/h4>\n
Down payment (incl. earnest deposit):<\/b> 20% or $74,000
\nClosing costs (lender fees, transfer taxes): <\/b>4% of purchase price or $14,800<\/p>\nOngoing costs:<\/h4>\n
Monthly mortgage payment (principal and interest):<\/b> $2,500
\nLoan term: <\/b>15 years
\nInterest rate:<\/b> 4.125% APR
\nProperty taxes:<\/b> $1,200 or $100 per month
\nHomeowners insurance: <\/b>$1,500 or $125 per month
\nAverage monthly maintenance:<\/b> $300 in utilities, and an additional $200 for general savings and maintenance
\nPrivate mortgage insurance:<\/b> N\/A<\/p>\nIncome and savings:<\/h4>\n
Gross income:<\/b> $200,000 combined or $16,667 per month
\nAmount needed for upfront costs:<\/b> $88,800
\nAmount needed for savings cushion:<\/b> $5,000<\/p>\nTotal amount saved before home purchase: $50,000 and an additional $24,000 loan from parents to compete with a 20% down payment<\/span><\/h3>\n
Paige and Chris\u2019s monthly housing costs total to around $2,725, or 16% of their gross monthly income.<\/p>\n
![\"A](\"https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2019\/11\/how-much-money-do-i-need-to-buy-a-house-room.jpg\")
<\/a>Source: (Chait Goli\/ Pexels)<\/figcaption><\/figure>\n Home budget case study #3: Elizabeth and Nick\u2019s duplex with room to grow in Washington, DC<\/h2>\n
When Elizabeth and her now-husband Nick moved to D.C. in 2013, she could barely stand to pay the rent.<\/p>\n
\u201cIt felt like throwing money down the drain,\u201d Elizabeth says.<\/p>\n
She and Nick consciously budgeted, living in a studio apartment with their two hunting dogs to save on rent until they were ready to buy.<\/p>\n
The market in D.C. was expensive and competitive, which left the couple feeling anxious and drained. However, they weren\u2019t willing to settle for something they didn\u2019t love, just because the pressure was on. The pair knew they needed space for the family they planned to start, as well as at least one guest room for the family that frequently visited from out of town.<\/p>\n
Knowing their budget was limited, Elizabeth and Nick focused their efforts on neighborhoods that came with a lower price tag but still had homes with enough space to meet their needs.<\/p>\n
In 2016, the couple bought a townhouse on the very outskirts of Washington, D.C. but still close enough to access public transportation (the metro and bus station) for easy commutes. \u201cOur home was big enough to accommodate our plans for expanding our family and had a yard for our dogs,\u201d explains Nick.<\/p>\n
At the time, the investment felt like a gamble, but the area is more up-and-coming now than when they initially bought it. \u201cIt\u2019s a relief,\u201d says Elizabeth. \u201cProperty values are only going up here, and we get to have a hand in helping the neighborhood and area grow into its own.\u201d<\/p>\n
About Elizabeth and Nick\u2019s home<\/h3>\n
Home type:<\/b> Semi-detached 3 bed, 2.5 bath, 1,088 sq ft home
\nHome price:<\/b> $479,000<\/p>\nUpfront costs:<\/h4>\n
Down payment (including earnest deposit):<\/b> 10.5% or $50,000
\nClosing costs (lender fees, transfer taxes, etc.): <\/b>4% of purchase price or $15,639<\/p>\nOngoing costs:<\/h4>\n
Monthly mortgage payment (principal and interest):<\/b> $1,997
\nInterest rate: <\/b>3.75%
\nLoan term: <\/b>30 years
\nProperty taxes: <\/b>$2,975 or $247 per month
\nHomeowners insurance:<\/b> $711 or $59 per month
\nAverage monthly maintenance:<\/b> ~$200 for emergency savings and upkeep
\nPrivate mortgage insurance:<\/b> $91\/month at time of purchase<\/p>\nIncome and savings:<\/h4>\n
Gross Income:<\/b> $167,025 combined or $13,918 per month
\nAmount needed for upfront costs:<\/b> $65,639
\nAmount needed for savings cushion: <\/b>$7,000<\/p>\nTotal amount saved before home purchase: $85,000<\/span><\/h3>\n
Paige and Chris\u2019s monthly housing costs total to around $2,394, or 17% of their gross monthly\u00a0income.<\/p>\n
The bigger the savings, the bigger the safety net<\/h3>\n
While formulas and calculators can help, no one has the same finances, and owning a home looks different for every buyer. The key is \u201cthere always has to be a little on reserve, don\u2019t overextend yourself,\u201d says Charron. \u201cI’m seeing first-time homebuyers being much more conservative today, and I am very thrilled with that.\u201d<\/p>\n
Header Image Source: (Solomon Rodgers\/<\/a>\u00a0Pixabay<\/a>)<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"
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