When you’re thinking about becoming a homeowner, there are plenty of fun things to do. You can browse through listings, dream up decorating schemes, and start thinking about all the gourmet meals you’ll cook when you finally have that fancy gas stove.

But before you fall in love with any recently remodeled three-bedroom ranchers, you’ll need to take the first step to buying a house: understanding how much you can afford.

Check out your savings account

Buying a house is a big investment. And even though the financial side is not the fun part, it helps to be prepared. That’s why the first step to buying a house is to do a deep dive into your finances so you can feel comfortable that you’re making the right choices further down the line.

Start by figuring out how much you have saved for a down payment. Luckily, there are many mortgage options where you don’t have to put down the traditional 20% of a home’s purchase price. But you will need to factor in having some cash on hand for closing costs, which can be 2-5% of a home’s total purchase price on top of the down payment. If you don’t have savings, then your first step to buying a house is to save, save, save until you have a down payment you’re comfortable with!

Go over your budget with a fine-toothed comb

Once you know how much money you have for a down payment, take a deep dive into your monthly budget. How much are you spending now for rent? How much more would you be comfortable spending every month? Are there things that you spend money on now that you’d be willing to cut out in order to buy a home?

Be realistic and come up with a budget that you’re truly happy with. You don’t want to head into homeownership only to hate how much you’re spending every month for your new place.

Make mortgage calculators your new best friend

After you have a solid idea of what your financials look like, head over to a mortgage calculator (you can try out LendingHome’s calculator) and start plugging in numbers. You’ll be able to get a general idea of what your price range should be based on your down payment and how much you want to pay every month. Mortgage calculators also include things like taxes–but you should check out your local tax rate and put in an accurate number to get the truest cost of owning.

Get pre-approved

Everything you’ve done so far is a great way to get started on the first step to buying a house. But you’re still just estimating how much you can afford. The best way to get a more concrete number is to head to a lender and get pre-approved. A pre-approval letter will be solid reassurance for both you—and the sellers of the homes that you’re interested in—that you can likely get a mortgage for a certain amount.

Once you’ve done all of the financial background work, it’s really time for the fun stuff! And it will be even more fun knowing that you’re set up for financial success in your homeownership journey.  

Read more about getting ready to buy

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