Blog posted On November 06, 2025
One of the most important questions that any burgeoning home buyer can ask is: how much can I actually afford? Once you find the answer, you’ll be well on your way to buying your first home! Next step: create a practical budgeting plan to help you set aside the funds you’ll need to buy a home. Don’t know where to start? We’ve got you covered. Here are five simple steps to help you create the perfect home buying budget.
Working with a loan professional like a lender can help give you a realistic price range. This way, you won’t waste your time looking at homes outside of your budget. Getting preapproved with a lender will give you a good estimate.
Pro tip: We often like to use the 30% rule of thumb: aim for your total housing payment (mortgage + taxes + insurance) to be roughly 28-31% of your gross (pre-tax) income. Once you figure out how much you're spending each month ($), you will want to divide this number by your gross (pre-tax) income ($). This will give you what lenders call a 'debt-to-income ratio.' Typically, you'll want this number to fall below 50%.
Next, you’ll want to determine how much you can afford to put down up front. In addition to working with your lender, you determine a solid down payment amount based on the loan type you want to use, your savings timeline, and your comfort with monthly payments. These factors matter because a larger down payment lowers your monthly payments and can reduce or remove the cost of mortgage insurance entirely. Here are some common down payment options:
Pro tip: If you’re struggling to come up with the money for a down payment, there are a few different options to help you speed up the saving process. First, you can explore different down payment assistance programs in your area by looking them up online or asking us! You can also set up a down payment gifting campaign via HomeFundIt.com. The holidays are the perfect time to add a down payment to your wish list!
Some forget that more expenses exist beyond the down payment when preparing to take on a mortgage. Closing costs can include but not limited to:
Pro tip: It’s better to overestimate these fees rather than lowball them. Typically, closing costs range from 2% to 5% of your purchase price.
In addition to saving money for closing costs, it’s a wise idea to ensure you have an emergency fund. Anything and everything can happen as a new homeowner (i.e. the old furnace breaks the month you move in, a tree falls on your roof, your basement leaks). So you’ll want to set aside additional cash to cover unexpected life events.
Pro tip: the general rule of thumb suggests budgeting about 1% of your home’s value per year.
Now that you’ve evaluated your options and worked with your lender, it’s time to begin saving for your first home. We want to encourage you to dive into creative ways to boost your down payment and home affordability.
You don’t have to do this alone! An agent and lender working together can help you estimate costs, choose the right loan program, and build a savings plan that fits your timeline. Reach out to our loan advisors today to get started.
Source: NerdWallet, Freddie Mac
