Buying your first home is a huge milestone and an exciting time for first-time homebuyers. It can also reveal unexpected emotions of stress and concern – especially financially. If you’re only familiar with renting a home or apartment, you may not be sure exactly how much you can afford when purchasing your first home.

Steps for Breaking Down Your Monthly Costs

While every circumstance is unique, we’re going to cover a few quick steps that can help you calculate what you can afford, and where you can turn for additional resources and expert assistance.

Step 1: Calculate your Income

This seems like a natural first step but it’s worth mentioning. Take a look at your yearly earnings and the amount you take home after taxes on a monthly basis. This gives you a starting point for how much you will be able to afford.

Step 2: Calculate your Expenses

Thanks to online banking, all of your expenses and income statements are just a click away. This doesn’t have to be an exact science, but you’ll want to identify how much you spend each month in categories like groceries, dining out, gas, bills (water, electric, sewer, trash, cable, etc), and entertainment.

Once you have an estimate of your spending in each of these categories, subtract the amount from your monthly income. The remaining balance further helps you determine how much you can afford each month.

Step 3: Understanding the Cost of Upgrading

Upgrading from a renter to a homebuyer comes with additional costs. For instance, you’ll have to pay homeowners insurance (which will cost a bit more than renters insurance if you’re required to have that in your current residence), property taxes, and electricity and water bills will likely increase. Keep this in mind as you calculate what you can afford so you don’t sign up for a mortgage that will leave you strapped financially.

Talking to Experienced Loan Professionals

If you’re purchasing your first home, you’ll need to talk to an experienced loan professional to get pre-approved to purchase a home. They’ll be able to help you determine the remainder of what you can afford. Things like the amount of your down payment (typically 20% is recommended), the current interest rate, and your credit score will affect your ability to get a loan and will impact the overall monthly payment required to purchase your home.

A loan professional will be able to tell you the maximum amount you can afford. The monthly amount should be in the ballpark of what you calculated using the steps above. If over or under, it will be up to you to adjust accordingly.

Additional Fees When Buying Your First Home

Finally, first time home buyers need to be aware of additional costs in the home buying process besides the mortgage. Paying for home inspections, realtor fees, and closing costs can rack up quickly and often require upfront payment. Unlike your mortgage, these amounts will be due at the close of the sale and can be thousands of dollars.

Can You Afford a New Home?

All of these steps will guide you in determining whether or you are ready for buying your first home. Remember, purchasing a home is a big step, and your ability to be flexible and understand the process will help make it go more smoothly for all involved.

Inspect One, Inc. Home Inspection Services provides home inspections for New Hanover County, Brunswick County, Pender County, and Onslow County in Eastern North Carolina. Contact us to book an appointment.