The mortgage expert’s guide to buying your first home: Setting your budget

Number one in a four-part series.
By Justin Walseth, Vice President – Mortgage Department Manager
First International Bank & Trust, Member FDIC

First time home buyers are some of my favorite people to work with. Taking the leap from renter to owner is a significant event in an individual’s or family’s life, and I am honored to be part of it.

Along the way, I’ve learned things that will help you, too. Check out these considerations about what type of first home you can afford:

1. Prevent payment shock: Know before you look

The first step in buying your first home is setting your budget. Before you even begin looking at homes or engage a realtor, you really need a sense of what kind of home you can afford. Understanding your budget helps prevent what I call “payment shock.” No one wants to experience that.

First Home

2. Set your home budget

The basis of a budget is your income, so take a close look at your take-home pay on a monthly and annual basis. This includes salaries, bonuses, commissions, and if you are entering into a mortgage with a co-owner, his or her income as well.

3. Find your numbers

Then we can talk about the two main components of a housing budget – your monthly payment and the down payment.

When setting a monthly budget, a good place to start is with current expenditures. How much are you paying for rent, on a monthly basis? Then, think about how much you would feel comfortable spending – and remember that there are typically a number of extra expenses associated with owning a home. Utilities, maintenance, insurance and special assessments are all important parts of a homeowner’s monthly budget that may be new to you.  Keep in mind that determining what you are comfortable spending is a very personal decision and may be different than what you can afford on paper. So don’t rush.  For help, check out our Rent vs. Buy calculator.

The second factor – down payment – can really scare people off, but it shouldn’t. It is a common misperception that you need a significant down-payment (think 20 percent) in order to purchase a home, and that is simply not true. In fact, there are a number of programs out there to help individuals secure a home with a minimal down-payment and a fixed interest rate. The Federal Housing Administration (FHA), Veterans Administration (VA) and state agencies like the North Dakota Housing Finance Agency (NDHFA) can be a great resource. Some of these programs have no income limitations and you don’t even need to be a first-time buyer. Your mortgage expert can help you evaluate your options.

After establishing a budget that you’re comfortable with, you’ll need to get pre-approved. We’ll talk about that next time.

In the meantime, visit our mortgage page for more resources to help you determine if you’re ready to buy

Justin Walseth, Mortgage ExpertJustin Walseth is a mortgage expert in Fargo with over 10 years of mortgage lending experience. He graduated from MSUM with a degree in Finance and Economics. When he’s away from work he enjoys golf, basketball and tennis as well as spending time with his wife and two children.