Jeff’s Carlsbad Blog for First Time Home Buyers


Why You Should Create a Budget

Posted in Financial,House Hunting by Jeff Dowler on November 28, 2006

moneysign22.gifAs a first time buyer, it is essential that you develop a budget as part of your house hunting and decision-making. Why is this important?

Buying a house is an expensive proposition, and there will be monthly expenses you can’t avoid – the loan (including principal, interest, taxes and possibly homeowner’s insurance), condo or HOA fees (in some cases), Mello-Roos (again in some cases here in California), and more. You should already know about getting pre-approved, and if you have done so you now know what the bank says you can afford in a loan. But that’s deceptive.

Great, you think. The bank will loan me $xxx,xxx, costing me $2175 per month. I can afford that. But can you?? This is why you need a budget.

  • Sit down and make a list of your monthly expenses…not just the standard ones like credit cards and your auto loan, but everything.
  • Make sure you include the money you spend on things like the gym, going to movies or the theatre, attending sporting events, going to restaurants, vacations, etc. You get the idea.
  • Then factor in the projected loan payment (PMI), estimates of utilities, HOA/condo fees, etc.
  • Finally, check this summary of expenses against your monthly take home pay. You might be surprised.

My advice is, make SURE that what the bank says you can afford, and what you REALLY can afford each month are in sync with each other. The bank does not factor in expenses other than loan payments and credit cards (i.e., your debt ratio). Your lifestyle expenses may be substantial, and unless you want to give that up, make sure you don’t buy a new home that will make you cash poor and leave no money for other things, including repairs and unexpected costs or emergencies.

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One Response to 'Why You Should Create a Budget'

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  1. […] Make a budget – in addition to your pre-approval you also need to take into account your monthly budget for your lifestyle and other expenses. What a lender says you can afford vs. what your personal budget says you can afford  can be very different. You don’t want to be house rich but cash poor! Read my earlier post on this for more details. […]


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