How to Budget for Your First Mortgage

Step 1: Start with your income

Add up your household’s monthly take-home pay, the money that actually lands in your account. If you’re buying with a partner, include both incomes, but think about whether the payment would still work if one income changed.

Step 2: List your current costs

Write down everything you already pay each month:

• Car payments, gas and car insurance
• Student loans and credit card payments
• Health insurance and medical costs
• Childcare
• Phone, internet and subscriptions
• Groceries and household supplies

Mark which costs are fixed and which you could reduce if you needed to.

Step 3: Find a comfortable payment

Subtract your current costs from your take-home pay. What’s left has to cover your housing payment, savings and everything else. A common rule of thumb is to keep total housing costs near 28% of your gross income, but your own numbers matter more than the rule. Our guide to how much house you can afford explains how lenders look at it.

Remember that a housing payment includes property taxes, homeowners insurance and, for some loans, mortgage insurance and HOA dues, not just the loan.

Step 4: Plan for the costs renters don’t have

Owning a home comes with costs a landlord used to cover:

• Repairs and maintenance, from a leaking faucet to a new water heater
• Utilities, which are often higher in a house than an apartment
• Yard care, snow removal and pest control
• Furniture and moving costs

Many homeowners set aside money every month for repairs so a surprise doesn’t become a crisis.

Step 5: Build a cushion

Keep an emergency fund separate from your down payment and closing costs. Some lenders also want to see money left in savings after closing, called reserves. Even a few months of expenses gives you breathing room if work or health changes.

Step 6: Find room to save

If the numbers are tight, look for places to trim before you buy:

• Cancel subscriptions and memberships you don’t use
• Cook at home more often
• Review your phone, internet and insurance plans
• Avoid new car payments or other new debt while you’re saving

Step 7: Track your spending for a month or two

Budgets work best when they’re based on what you really spend. Track every purchase for at least a month, using a spreadsheet, your bank’s spending tools or a budgeting app.

Then talk to a loan officer. Bring your budget to the conversation. A loan officer can show you loan options and payments that fit the number you’re comfortable with, not just the most you could borrow.

This article is general information, not an offer to lend or a commitment to lend. All loans are subject to credit approval, underwriting and property valuation. Belem Servicing LLC, NMLS ID #715386 (NMLS Consumer Access).

Sources

• Consumer Financial Protection Bureau, What is a debt-to-income ratio?
• Consumer Financial Protection Bureau, Owning a Home