Purchase

How To Budget to Buy a Home: The Essential Homebuyer’s Guide

Published: June 11, 2024

How To Budget to Buy a Home: The Essential Homebuyer’s Guide

Buying a home is a significant financial milestone, but it also requires a significant financial outlay. If you’re dreaming of buying a home, you first need to make sure you have a solid budget in place to pay for the one-time fees like your down payment and closing costs as well as the new recurring expenses that come with homeownership.

In this blog, we’ll share some tips to help you budget for your home purchase and ensure a smooth transition into homeownership. Below, you can find more details about how to set your budget, which expenses you should keep in mind, and how to track your budget throughout the buying process and into homeownership.

Setting Your Budget

Before you start to set money aside, you first need to determine your budget. There are three main things that you need to consider: your buying power, how much you plan to put toward your down payment, and what your closing costs might look like.

Determine Your Affordability with a Pre-Approval

The first step in budgeting for a home is to assess your financial situation and determine how much you can comfortably afford. Lenders typically recommend that you follow the 28/36 rule.

Based on this rule, your monthly housing expenses, including mortgage payments, property taxes, and insurance, should not exceed 28% of your gross monthly income. Total monthly debt payments—which include housing expenses and other existing debts such as student loans or a car payment—should not exceed 36% of your gross monthly income.

A great way to get started with a snapshot of your homebuying budget is to work with a UMortgage Loan Originator to get pre-approved. Your pre-approval will use your income, credit, and existing debts to provide you with an estimate of your buying power. If you want an immediate estimate of what you can afford, feel free to use my free affordability calculator.

Calculate Your Down Payment

Unless you’re buying your home with a VA loan, you’ll have to pay a down payment when you close on your home. Saving for a larger down payment can help you secure a lower interest rate and avoid private mortgage insurance (PMI), which can add significant costs to your monthly payments. However, with a conventional loan, you can buy with as little as 3% down. For more information on down payment minimums, reach out to your UMortgage Loan Originator.

Factor in Closing Costs

Closing costs are the additional fees and expenses associated with the home-buying process, such as lender fees, title insurance, and property taxes. These costs can range from 2% to 5% of the home's purchase price, so it's crucial to factor them into your budget. As you start working through the beginning stages of your homebuying journey, you can work with your UMortgage Loan Originator for an estimate of your expected closing costs.

Accounting for New Expenses

While homeownership is exciting, it also comes with a handful of new one-time and ongoing expenses. As you’re budgeting for your home purchase, it’s important to consider the expenses below so you’re prepared when that first new bill hits your mailbox.

Homeowners Insurance

Homeowners insurance is a mandatory expense that protects your investment against potential damages or losses. Homeowners insurance costs vary depending on factors such as the home's location, age, and construction type. Once you hit the market, you can connect with your UMortgage Loan Originator or real estate agent for a cost estimate.

Property taxes are an ongoing expense that homeowners must pay annually or semi-annually. These taxes are based on the assessed value of your home and can vary significantly depending on your location.

Typically, your property taxes and homeowners insurance are rolled into your escrow, which adds these expenses incrementally through your monthly mortgage payment.

Utilities

As a homeowner, you’ll be responsible for paying utilities such as electricity, gas, water, and internet/cable services. These expenses can vary based on the size of your home, energy efficiency, and usage habits.

Maintenance and Repairs

When you own your home, you won’t be able to rely on your landlord or property management company to maintain your home. As a homeowner, you’ll be responsible for repairing various components, such as the roof, appliances, and HVAC systems. It’s essential to budget for these expenses, as they can be costly and unexpected. When you initially buy your home, your inspection will give you a good gauge of the health of these costly components like HVAC systems, plumbing, and roofs.

Tracking Your Budget

Setting your budget is a big step in your journey toward homeownership, but the actual act of following that budget is what will enable you to buy your home. As you inch closer to being able to afford to buy your home, follow these steps to ensure you stow away the necessary funds to turn your dreams of homeownership into reality.

Create a Detailed Budget

Develop a comprehensive budget that includes all your monthly expenses, such as mortgage payments, utilities, insurance, and other recurring costs. This will help you identify areas where you can cut back or allocate funds more effectively.

Use Budgeting Tools and Apps

There are plenty of great budgeting tools and apps out there that streamline the process of tracking your expenses and monitoring your progress. Many apps offer features like categorizing expenses, setting spending limits, and generating reports. There are also plenty of spreadsheet templates that you can use for a more manual budget-tracking experience.

Review and Adjust Regularly

Regularly review your budget and adjust as needed. Your financial situation may change over time, and it's essential to adapt your budget accordingly to ensure you stay on track. As you work along your journey towards homeownership, take some time to connect periodically with your UMortgage Loan Originator to share updates on your budget and discover any new products that might make your home purchase more affordable!

By following these steps, you'll be well-equipped to budget effectively for your home-buying journey. Remember, proper budgeting not only helps you achieve your homeownership goals but also ensures long-term financial stability. Once you’ve closed on your home, you can continue to follow these steps to protect yourself from unforeseen repairs or save for your next big purchase!

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The BasicsDecember 18, 2024

How to Read Your Loan Estimate

Getting your loan estimate is an essential step in the homebuying or refinancing process. What’s even more essential, though, is knowing how to read your loan estimate. We’ve seen plenty of clients work with other lenders and get hit with extra fees that were hidden in plain sight on their loan estimates. Reading your loan estimate doesn’t have to feel overwhelming. This guide will break it down step-by-step so you can understand every detail and feel confident about your mortgage. What is a Loan Estimate? A loan estimate is a detailed document provided by your mortgage lender that outlines all the different details and fees that will go into your mortgage once approved. It details things like your rate, the type of loan you have, what your monthly payment will be, an estimate of your closing costs, and much more. Remember, these figures are estimates. They can change if your mortgage rate, home price, or down payment changes. It’s important to work alongside your loan originator to understand all of the costs that go into your mortgage to make sure you know what you’re paying for and get the best deal possible. The Different Sections of Your Loan Estimate When you receive your loan estimate, you’ll notice that it’s broken down into a few different sections. It’s important to know what these sections cover and what they mean to avoid hidden fees and make sure your mortgage is structured the way you want it to be structured.Below are some of the sections you should review in detail and the different sections you’ll see on each page. Page 1 - Loan Terms Page 1 of your loan estimate summarizes the basic details of your loan. This includes your loan amount, interest rate, monthly principal & interest, prepayment penalty, and balloon payment. At the very top of the page, you can see whether you locked your rate, the length of your loan, and the type of your loan. As you review this section, keep in mind the things you agreed upon with your loan originator. Things like whether you locked your rate, what type of mortgage you got, and whether or not your rate can or cannot increase after closing. Page 2 - Closing Costs Page 2 of your loan estimate will cover all of the fees that make up your closing costs. The only thing on this page that’s controlled by your loan originator is section A: origination charges. This section includes charges like application fees, underwriting fees, or points to ‘buy down’ your rate. These are the only fees your loan originator controls, so review them carefully to ensure they align with what you discussed. The other sections are the services that you can and cannot shop for, taxes and government fees, prepaid interest, taxes, and insurance, initial escrow payment due at closing, and other costs. At the bottom of this page, you can see your estimated cash to close. This is the amount of money you’ll need to pay to close your loan and get the keys to your new home. It combines the fees outlined on that page with your down payment and accounts for paid fees like a deposit, seller credits, lender credits, and other things that help lower your total closing costs. Page 3 – Additional Information Finally, on page 3, you can see a few pieces of information specific to your loan. At the top of your page, you can find information about your lender and loan originator. Beneath that are figures that you can use to compare this loan estimate with any others you receive. Finally, at the bottom of the page are details about your appraisal, loan assumption if you sell or transfer the property to someone else, late payment details, refinance qualification, and servicing. Servicing lets you know whether your lender will transfer servicing of your loan to someone else. This is important to know—if your lender intends to service the loan, you will pay that lender each month. If they plan to transfer service, you will need to pay a different lender. You can confirm all of those payment details with the lender at the time of your closing. How to Use Your Loan Estimate to Your Advantage Understanding every section of your loan estimate will help empower you to shop around for the most affordable mortgage available with terms that fit your short- and long-term financial goals. It will also protect you from different hidden fees that some lenders utilize to make a loan look more affordable than it actually is. The most common is discount points that allow a lender to give you a lower mortgage rate than the market allows. If you think your quoted rate is too good to be true, make sure to check section A on page 2. Discount points aren’t always bad, but it’s important to know whether you’re paying them and if it makes sense to pay discount points before you sign the dotted line. When you work with a UMortgage Loan Originator, you’ll unlock expert guidance to walk you through the entire mortgage process, including your initial loan estimate and your more detailed closing disclosure. You can also trust that you won’t get hit with any deceptive fees—just a mortgage that allows you to unlock the life-changing benefits of homeownership. Want to get started? Follow this link and fill out the form to get connected with a Loan Originator in your area today!

PurchaseNovember 18, 2024

New Appraisal Waiver Guidelines Could Save Buyers Thousands in 2025

Buying a home just got a little easier (and more affordable)! Starting in 2025, Fannie Mae and Freddie Mac are expanding their appraisal waiver programs, which allow buyers to skip the traditional appraisal process. The updates mean buyers can qualify for waivers with loans up to 90% loan-to-value (LTV), and new inspection-based waivers will push that threshold to 97%. That means if you’re putting as little as 3% down, you could save time, hassle, and hundreds—if not thousands—of dollars. These programs have already saved buyers billions in fees and the upcoming changes promise even bigger benefits. Whether you’re a first-time buyer or simply looking to save, here’s what you need to know about how these new guidelines can help. What’s an Appraisal Waiver, and Why Should You Care? An appraisal waiver replaces the need for a traditional home appraisal with a high-tech, data-driven valuation. Instead of scheduling an appraiser to inspect the property (and paying hundreds of dollars), the waiver uses public records, historical data, and algorithms to estimate the home’s value. This innovation isn’t just convenient—it’s a big money-saver. Freddie Mac’s ACE (Automated Collateral Evaluation) program has already saved buyers $1.63 billion in fees, and Fannie Mae’s Value Acceptance has topped $2.5 billion in savings. Plus, skipping the appraisal can shave weeks off your closing timeline, which is especially helpful in competitive markets where speed matters. How This Helps Save Homebuyers Thousands Appraisals are, in most cases, an essential part of the homebuying process. By determining the true market value of a home, buyers can be protected from overpaying for a home. However, in highly competitive markets, things like appraisal gaps can cost borrowers thousands of dollars if multiple offers bring the asking price above the appraised value. By expanding the eligibility for waivers, Fannie Mae and Freddie Mac are making it easier—and cheaper—for more buyers to get into their dream homes without having to worry about those potentially costly appraisal gaps. This is a game-changer for first-time buyers or anyone on a tight budget. Not only does it reduce upfront costs, but it also speeds up the timeline to close, helping you secure your new home faster. And with billions of dollars already saved, it’s clear these programs deliver real value. Whether you’re buying your first home or upgrading to your forever home, these expanded waiver options could save you time, money, and stress. What’s New in 2025? Big news: Starting in 2025, the eligibility for appraisal waivers is expanding. Loans with up to 90% LTV will qualify for standard appraisal waivers, up from the previous cap of 80%. Even better, inspection-based waivers—like Freddie Mac’s ACE+ PDR program—will allow loans with up to 97% LTV, so buyers with as little as 3% down can avoid appraisals entirely. Here’s how it works: With an inspection-based waiver, a quick on-site review of the property replaces the traditional appraisal. It’s faster, cheaper, and just as reliable. For buyers, this means fewer hoops to jump through and more money in your pocket to put toward your new home. If you want to use these benefits to expand your homebuying horizons in 2025, get connected with a UMortgage Loan Originator today to start your homebuying journey!

PurchaseNovember 14, 2024

Your Comprehensive Guide to Home Inspections

Buying a home is one of the most significant investments you can make. Once a homebuyer finds the home they want to submit an offer on, one of the most common questions is whether or not they should get an inspection. Getting an inspection on the home you want to buy has plenty of benefits. Some loan types require them and some don’t. We put together a comprehensive guide to help you make a confident decision regarding your potential inspection when you’re preparing to submit an offer on a home. What is a Home Inspection and How is it Different Than an Appraisal? A home inspection is an objective assessment of a property's overall condition, performed by a licensed professional. During the inspection, key components of the home—including the roof, foundation, electrical systems, plumbing, and HVAC—are thoroughly reviewed to ensure they are functioning properly and free of major issues. The primary goal of this process is to identify potential problems that could require repairs or impact the home's value. Unlike an appraisal, which focuses on determining a property's market value, a home inspection emphasizes safety and structural integrity. This distinction is crucial because it gives buyers a clear understanding of the true condition of the home they’re committing to before finalizing their purchase. While they might seem similar, an inspection is much different than an appraisal. First and foremost, professional appraisals are required for every mortgage type, including refinances. An appraisal evaluates the home's condition, features, location, and recent sales of comparable properties in the area. The primary purpose of an appraisal is to ensure that the lender is not lending more money than the home is worth, which protects the lender’s investment. While an appraisal determines the market value of a property, a home inspection assesses the home's physical condition. Appraisers perform a broad overview to establish value, checking factors like square footage, amenities, and general upkeep. Inspectors, on the other hand, dive deeper into the safety and functionality of the home's systems and structure, identifying any existing or potential issues. What Loan Types Require an Inspection? It’s important to note that most lenders do not directly require a home inspection for certain loan types. However, there are specific loan programs with unique conditions that encourage or necessitate this step. For example, Federal Housing Administration (FHA) loans require an appraisal with specific property standards. While technically not an inspection, this appraisal includes a health and safety review that flags potential issues. If the home does not meet these standards, repairs must be made for the loan to be approved. VA (Veterans Affairs) loans also require an appraisal that assesses the home for Minimum Property Requirements (MPRs) to ensure it is safe, sound, and sanitary. Like FHA loans, while this appraisal is not a full home inspection, it may prompt buyers to pursue one to identify any underlying issues the VA appraiser did not cover. Conventional loans don’t mandate an inspection, but many lenders and experts recommend one on top of the required appraisal. While the inspection itself might not be a formal requirement to secure your mortgage, it's important to understand the standards that different loan types must follow to keep you in the loop and help you make informed decisions. What Are the Benefits of Getting an Inspection? Opting for a home inspection offers numerous advantages that make it well worth the investment. Overall, it helps buyers avoid surprises and expensive repairs. Discovering issues like faulty wiring, plumbing leaks, or foundation cracks before purchasing gives buyers the power to negotiate with the seller for repairs or price adjustments. This often leads to a better final deal and lowers financial risk post-closing. A home inspection also serves as an educational experience for buyers. During the process, inspectors can point out maintenance needs, provide advice on how to handle certain issues and share information that will help buyers maintain their homes more effectively. This proactive learning helps homeowners feel prepared and confident in their ability to manage their property. Another significant benefit is peace of mind. Even when no major problems are found, an inspection reassures buyers that the home they are investing in is safe and solid. For first-time homebuyers, this assurance can be particularly valuable, allowing them to proceed with fewer doubts. Inspections aren’t mandatory for every home purchase and in some cases, the lack of an inspection can strengthen your offer in a competitive market. However, most real estate professionals recommend that buyers include a home inspection contingency in their offer. This provision allows buyers to renegotiate or withdraw if major issues arise, protecting them from unforeseen, costly repairs and enhancing confidence in their purchase decision. By uncovering hidden issues early, buyers can negotiate repairs, adjust their offer, or walk away if necessary. This transparency helps prevent unexpected expenses after closing and provides peace of mind to new homeowners. While home inspections are an additional step and cost in the homebuying process, their value far exceeds the price. By uncovering hidden issues early, buyers can negotiate repairs, adjust their offer, or walk away if necessary. If you want to learn more about home inspections in the mortgage process or want to connect with a Loan Originator to guide you toward homeownership, follow this link and fill out the form to get started.