Back To Blog

A Step-by-Step Guide to Building A Homebuying Budget

Over the last two years, the number of active homebuyers has drastically swelled. As per reports from 2021, mortgage applications for new homes have increased by 33% over the last year alone. At the same time, over 45 million adults between the ages of 26-35 have also stated they plan to buy their first homes this 2022. This reflects a nationwide real estate excitement that analysts believe can only be quelled by rising house prices.

According to a MarketWatch report on house pricing fluctuations, from February 2020 to September 2021, a 20% rise in real house prices was already observed. In Vermont, a median increase of approximately 19% was seen in house prices. This makes Vermont the state with the third highest increase in house prices across the country. For aspiring homebuyers, this means that in order to purchase that dream home, you first need to do some realistic budgeting, and here’s how:

Learn How Much You Can Spend

It’s essential to understand where you’re financially coming from. To estimate this, take into account your annual gross income, credit history, and any other current expenses. However, if your finances are disorganized (for instance, if this is your first home) then you can enlist a certified public accountant (CPA). The CPA designation is the most recognized and valued in the field. Having earned a CPA means that an accountant is trained in various specializations including compliance, forensic accounting, risk management, auditing, tax accounting, and fraud examinations. As such, they’re the most capable when it comes to organizing and assessing, and rectifying your financial records. Having this newfound clarity can make a huge difference as you can now manage your expectations and explore reasonable options without getting into debt.


Determine Your Current Debt

It’s important to account for debt because this will influence how much spending money you can actually set aside for a house. Otherwise, debt can quickly pile up or even affect your chances of getting a fair mortgage or getting your bid accepted. Aside from simply paying your debts on time, another way you can better manage this is by signing up for plans early on. This means that if you’re just about to sign up for a loan, an insurance policy, or a credit card, do so as early as possible. This way, you’re more likely to get a lower monthly premium and lower your debt ratio. On top of this, you can also ask your insurance provider to lower your monthly payments. As explained by a post on underwriters by Maryville University, insurance underwriters can adjust policy prices to minimize your chances of defaulting. This means that they can help you attain plans at lower prices while also factoring in the unique circumstances relative to your lifestyle. By doing this, you are able to enjoy the necessary plans and policies you need (for instance, car insurance) while also securing them at a price that is within your debt capacity. This will allow you to consistently put money towards a house without compromising other payments or increasing your money owed.


Find Out How Much You Need To Save

Depending on the homes you’ve set your sights on, you may either have to use up most of the money you can afford to spend or you can go seriously under budget. Regardless, some of the things you’ll need to save for are the mortgage, down payment, closing costs, and any needed renovations or repairs. Recently, mortgage rates have been spiking which is understandably why it’s often the largest consideration. After all, a CNBC article on home affordability reveals that the average 30-year fixed rate is now at 5.55%. If this were to rise just five more points, this would make it the worst period of home affordability ever. That said, your down payment could also be up to 20% of the home’s purchase price. Meanwhile, closing costs can cost you another 2% to 5%, and repairs another 1% to 4%. These fees are basically non-negotiable, so it’s essential to anticipate paying for each and every one of them ahead of time.


Consider location-based financial factors

This doesn’t just refer to the fact that some places have homes that are cheaper or more expensive. Rather, some places have special assistance initiatives that you can take advantage of. For instance, one of Vermont’s top housing trends includes a rise in out-of-state homebuyers. In fact, in 2020 alone, there was a 70% surge in this particular demographic. Despite this, as we mentioned earlier, Vermont home prices are soaring. So, a compromise that many can take advantage of is the Vermont Down Payment Assistance (DPA) program. Enacted in 2015, this program offers aid in the form of a non-amortizing, 0% second mortgage. In addition, there’s also the Vermont Housing Finance Agency’s (VHFA) MOVE program. This offers some of the lowest interest rates. Of course, such efforts vary greatly per state. But, in general, knowing about them can significantly impact your budgeting in your favor.


Determine And Apply Your Budget Plan

Lastly, now that you have all your factors and data reviewed and arranged, you can allot a budget approach for your home. Your budget should also reflect your overall monthly expenses like food, shelter, transportation, childcare, and emergencies. This way, you’re able to set aside the money you need for your home in a sustainable manner. To further help this pursuit, you can use free budget worksheets like those at Freddie Mac. But if you’re afraid of defaulting on payments and need extra assistance, you can also work with a HUD-approved housing counselor. Because these experts are trained and certified by the Department of Housing and Urban Development, they are able to find you the best options. This makes repayments (namely for that tricky mortgage) and related planning much smoother and personalized.


Finding the money to buy a new home may not be the easiest journey for many. However, while it does take a lot of number crunching and financial discipline, there is a straightforward and effective path to fulfilling your homebuying responsibilities.


If you’re considering buying a home in Central Vermont, contact Green Light Real Estate today to start discussing your options.


Written by Cassandra Silas for

    Add Comment

    Comments are moderated. Please be patient if your comment does not appear immediately. Thank you.

    This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.


    1. No comments. Be the first to comment.