Home Buyer's Guide

Budgeting for a Home: What can you Comfortably Afford?

Everyone’s budget is unique, and our desire at First Choice Loan Services Inc. is to match you with a loan program that lets you not only enjoy your home, but also the life you lead outside of it.  To best do this, it’s important to make a distinction between how much you could borrow and how much you should borrow.

A major step in determining how much you should borrow is to set your budget. Your savings, level of current debt, foreseeable debt, and pre-tax income should all be taken into consideration. Questions to ask yourself include:

  • What budgetary changes would you potentially need to make?
  • Do you have savings accounts, education funds or retirement needs to consider?
  • Are there available funds for a down payment and closing costs?
  • Could you pay discount points?
  • How much can you reasonably set aside for maintenance and repairs?
  • Are you prepared to pay property taxes, insurance, utilities and other homeowner fees?

Once you’ve assessed all the expenses of homeownership, First Choice Loan Services can help you to determine how much you are able to borrow.

When you are aware of how much you could borrow, you’ll want to decide how much you should borrow by considering the type of home you want to own.  For this, you can ask yourself some of the following questions:

  • What needs you have that the home should meet?
  • How many bedrooms and bathrooms do you prefer?
  • What other type of space requirements do you have?
  • Do you want a single-family home, a condo, a townhome or something else altogether?
  • Should you seek a one-story or two-story home?
  • How much home maintenance is acceptable for your lifestyle?
  • Do you foresee repairs or improvements?
  • Is your home in close proximity to your office or work?
  • Are you and your family interested in and comfortable with the area?
  • Are the school districts a good fit for your children?
  • What type of yard do you desire?

When you have these questions answered, you’ll better know the type of home you’re looking for and what’s available within your price range.

Formulating a concise budget is vital when selecting the loan option that’s well suited for your day-to-day lifestyle and long-term financial goals. Several factors need to be considered when designing your budget to purchase a home, such as your credit score, your debt-to-income ratio and major one-time expenses like the down payment amount and closing costs as well as recurring expenses (both fixed and variable) such as taxes, insurance, car payments, credit card bills, student loans and more. You can work with your Loan Originator with First Choice Loan Services Inc. to see how this information will help you to understand what you can comfortably afford and to make the best decision when choosing your mortgage.

Your monthly mortgage payment is an investment in your future, and for that reason it’s important to be sure this amount is comfortable for you and your plans. This payment includes Principal, Interest, Taxes and Insurance, otherwise known as PITI.

  • Principal is the amount borrowed to buy the home, not including interest.
  • Interest is the expense for money borrowed.
  • Taxes are determined by local governments and are normally paid as part of the monthly mortgage payment to the lender who collects it into an escrow account. At the time taxes are due, the lender will pay the government this amount on the buyer’s behalf.
  • Insurance is also typically paid to the lender who collects it in an escrow account. This includes two standard types of coverage: Mortgage Insurance and Homeowner’s Insurance.
    • Mortgage Insurance is often necessary for those contributing a small amount for their down payment. In the event that the homebuyer defaults and is unable to pay back the loan amount, Mortgage Insurance protects the lender.
    • Homeowner’s Insurance covers damages caused by dangers such as natural disasters (among other incidents).

Your First Choice Loan Services Loan Originator can sit down, review your budget with you, and help you to understand how it translates into a realistic monthly payment that allows you to live comfortably in a home that you love. We will work with you to find a loan situation that allows you to enjoy the present and achieve your long term financial goals in the future.