What should my finances look like before buying a house?

Debt and budget Start with the industry recommendations: Total debt payments, including a future mortgage, should be less than 36% of your pre-tax income . Total monthly housing costs should be less than 28% of your pre-tax income.

How much of your income should you save to buy a house?

If you begin saving 20% of your income each month , you could be in a good position to not only qualify for a loan with a reasonable interest rate, but also to be able to have a sufficient down payment ready.

What is the 50 30 20 rule?

The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings .

Can I afford a house on 70k a year?

One rule of thumb is that the cost of your home should not exceed three times your income . On a salary of $70k, that would be $210,000. This is only one way to estimate your budget, however, and it assumes that you don't have a lot of other debts.

What is a good credit score for buying a house?

Some types of mortgages have specific minimum credit score requirements. A conventional loan requires a credit score of at least 620, but it's ideal to have a score of 740 or above , which could allow you to make a lower down payment, get a more attractive interest rate and save on private mortgage insurance.

What is the rule of thumb for buying a house?

For many first-time buyers, a good guideline is to look for a home that is about 3 to 5 times your household annual income . Key factors that may guide you to a higher or lower range could be your current debt situation, the general level of mortgage rates, and your household's expected future earnings power.

How much house can I afford with $10,000 down?

If you have a conventional loan, $800 in monthly debt obligations and a $10,000 down payment, you can afford a home that's around $250,000 in today's interest rate environment.

What should my income be before buying a house?

To afford a typical home in the most expensive metro areas, by contrast, one must rake in at least $200,000 annually . The most expensive market in the U.S. is San Jose, California, where home affordability requires a minimum income of roughly $454,300.

How much money should I have in my bank account before I buy a house?

A good number to shoot for when saving for a house is 25% of the sale price to cover your down payment, closing costs and moving expenses. (This amount is separate from saving up 3–6 months of your typical living expenses in a fully-funded emergency fund—which I recommend you do first, before saving up for a home.)

8 Financial Tips for Buying Your First Home

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Ready to buy your first home? Congratulations! This is an exciting time in your life, but it can also feel very overwhelming. To make it an enjoyable experience, I’ve taken my 17 years as a mortgage broker and compiled a list of my eight best tips for purchasing your first home!

With a little inside information, you can eliminate confusion and make the best purchase decision possible. Just remember that buying a home can be a long process and there is no reason to rush through it. Educate yourself on the process, and use recommendations from family and friends to enlist a real estate agent and mortgage broker.

Know your credit rating

Before you start looking for a house and shop around for a mortgage, it’s important to know your credit score. To secure the best possible loan rate, you’ll need a credit score of 740 or higher. By knowing what your credit rating is ahead of time, you can allow yourself some time to improve your rating before you start looking at houses, so check your credit score now for free at Credit Karma.

Eliminate your debt first

If you haven’t entered the housing market yet and you still have debt, I highly recommend postponing your house hunt until all (or most) of you debt is eliminated. Not only will it be significantly harder to pay down your debt once you own a house, but having pre-existing debt will also affect the terms of your mortgage. Overall, you will be given a better mortgage rate if you’re debt-free.

Read: Pay off Debt With the Debt Snowball Method

Know what determines your loan terms

When a bank or lender is deciding how much money to give you, and what the terms of that lending will include, there are three factors they consider:

1) Your credit rating
2) Your income
3) Your income-to-debt ratio

Before you start shopping for a mortgage, it’s important that you know what determines your rate and terms. By understanding these factors, you can improve things such as your credit rating or income-to-debt ratio to get a better mortgage rate. It’s much easier to review these factors before you start looking for a house, rather than learning about them while you’re putting in an offer on your dream house.

Don’t confuse your loan amount with your spending amount

It’s critical to understand that just because a bank or lender pre-approves you for a $600,000 mortgage, doesn’t mean you can afford a $600,000 house. There are other factors to consider when it comes to your budget – such as monthly mortgage payments and closing costs. Don’t be irresponsible with your home buying decision, and don’t allow an inflated pre-approved amount sway you into buying a more expensive home than you can afford.

Familiarize yourself with mortgage terms

It doesn’t take long for a first-time homebuyer to feel overwhelmed by the terminology. This is why I recommend that you take an hour to research common mortgage terms online. When you have a better understanding of the terminology your mortgage broker or real estate agent are using, you will feel more comfortable with the process.

Knowing what mortgage terms mean will also give you a sense of confidence, and may also give you a better position to negotiate from.

To teach yourself mortgage terms simply search Google for things like “common mortgage terms explained.” You don’t need to know everything, but having an understanding of the basic will help you a lot.

Take advantage of your flexibility

More often than not, first-time homebuyers have flexibility with closing dates because they are either renting or living with their parents. This position of yours can be used as a bargaining chip when placing an offer.

For example, the seller is likely buying another home and will need to coordinate the closing dates of the two sales. If you are flexible on the closing date, your offer may be given preference over another buyer who has a firm date due to the sale of their previous house.

Read: 3 Spending Habits That Are Setting You up for Failure

Don’t forget closing costs

When you submit an offer on a house, and it’s approved, it’s a common mistake for first-time homebuyers to think that the down payment is all they have to pay. There are other fees involved in buying a house, and one of these fees is the closing costs. On average, closing costs can range from 2% – 3.5% of the total cost of your home purchase. Be sure to include this fee in your budget so that you aren’t surprised when you have to pay it.

Additional fees to know about are home inspections, property taxes, home insurance and moving expenses. Ask your real estate agent to provide you with a list of estimated fees to research, and then call around to find out what the actual fees might be. I recommend creating a list of fees so that you are fully aware.

Have a home emergency savings account

One of the biggest differences between renting and owning is that as the homeowner you are now responsible for covering the costs of repairs and upkeep. I recommend that new homeowners have some money set aside for house emergencies. This could include your roof leaking, your furnace breaking or having to buy new appliances. Consider CIT Bank Savings Builder Account for your home emergency fund.

It’s inevitable that these unplanned expenses will arise when you own a house, so be sure that you are prepared to cover these expenses as they come up. On top of saving for a down payment, it’s wise also to have some money set aside for these costs.

Read: How to Build an Emergency Fund (Step-by-Step Guide)

This article was written by Sheldon Brown. Sheldon has worked as a mortgage broker for the last seventeen years, and he’s assisted plenty of first-time homebuyers on their journey to purchasing a home.