How to Determine a Budget for Buying a House

Whether it’s your first or fifth time buying a house, the process is generally the same. It can be exciting when you are finally in the market for an upgrade and it seems like the possibilities are endless. But there are a lot of important pieces that go into buying a house, and one of the most important ones is determining a budget. A big mistake that some homebuyers make is not being realistic with what they can afford.

Debt to Income Ratio

If you are applying for a home loan, banks will look at your DTI, otherwise known as your debt to income ratio. A DTI considers the ratio of your total monthly debt and your pre-taxed monthly income. Some lenders might say you qualify for a high debt to income ratio, but many experts recommend not to exceed 36%. The 36% limit allows for a cushion in case something unfortunate happens and you are temporarily not bringing in income.


When looking at affordability, you want to start by tracking all your monthly debts, including various types of loans such as your car or schooling. You will also need to consider your household income. If you are planning on purchasing a home with someone, you both should determine how your mortgage will be paid.  Next, you need to ensure that you have enough money in your savings account to cover a complete down payment and at least 3 months of housing payments. In case something happens, you want to make sure you have enough to pay your mortgage and various expenses.

Closing Costs

Closing costs can often be easily forgotten by new home buyers due to the excitement of purchasing a home. If you are lucky, some sellers or developers offer buyer incentives with the purchase of their house. As long as the builders approve, you can put your buyer incentives towards your closing costs to help financially. If you know you would rather use your buyer incentives for upgrades and future renovations, you should calculate closing costs into your home buying budget. Closing costs typically range from two to five percent of the cost of the home.

Buying a house is an exciting process and can go smoothly if you make sure you properly budget and buy what you can afford. If you need help finding a house within your budget, call us and we can set you up with a real estate agent!