One of the biggest challenges of buying a home is setting a budget. Determining how much to spend on a home is a very personalized process that involves considering multiple factors. For that reason, you need to evaluate your circumstances before moving on to the property hunt. Here's how to accomplish that process quickly and easily. 

How Much Can You Afford to Spend on a House? 

The financially-complicated nature of homeownership prevents buyers from simply using their current rent amount as a starting point. Instead, you need to begin by evaluating your household income versus expenditures. This number is the absolute top-dollar mortgage payment. However, ideally, you shouldn't spend more than 25% of your combined gross income on a mortgage payment. 

The downpayment also needs to be factored when buying a home. The out-of-pocket cost varies by lender and loan type, but generally, homebuyers put down 20% of the property's cost. Take your current savings balance and multiply by .2 to determine your max market price with that rate.

What Other Expenses Can You Expect?

The mortgage isn't the only cost you'll face as a new homeowner. Insurance is likely the most substantial additional expense. Not only do you pay for a homeowner's insurance policy, but many buyers need to carry mortgage insurance when they pay less than 20% down.

You have the responsibility of covering repair and maintenance costs as well as utilities. Since the average monthly cost varies by property, utilize the average amount for your area. For instance, it’s $404.50 in Minnesota when estimating expenses. 

What Are Your Financing Options?

The type of financing you choose has a significant impact on your budget because down payment and interest options vary. The main options include:

• Traditional: The most common home loan is provided by private lenders, like banks. This loan requires a down payment between 10%-20% but boasts lower interest rates. 

• FHA: Backed by the Federal Housing Administration, an FHA loan offers lower credit requirements and only requires a 3.5% down payment. 

• VA: The VA home loan is available for both active duty and qualifying military personnel. It offers the benefit of no downpayment, and you aren't required to carry mortgage insurance. 

• USDA: The U.S. Department of Agriculture loan also doesn’t require a down payment but is restricted to buyers in rural areas. 

Along with type, the length of the loan should play into your budget. A 30-year loan offers a lower monthly payment. A 15-year mortgage, on the other hand, requires a higher monthly payment, but you end up paying less in interest over the course of the loan. 

Are you interested in buying a home in Washington County, MN? Turn to trusted Top Realtor®  Justyna Johnson- ExP Realty. Homebuyers and sellers in Woodbury and the surrounding areas rely on the local agent for personalized guidance. Find your dream home today by browsing her online listings, and request assistance by calling (651) 501-2345 or texting "HOME" for your FREE TRUSTimate prosperity report.