If you’re taking the plunge into home ownership for the first time, it can be a little scary, especially when it comes to finances. In order to create your first home budget, you’ve got to crunch a few numbers. The important thing is to be realistic and stick with something you can truly afford. Now that we’ve gotten that out of the way, let’s get started!

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How Much House Can You Afford?

To come up with your house budget, begin with the 25% rule, which is that your mortgage shouldn’t be more than 25% of your gross income. Simple enough, right? Sticking this rule can be difficult in more expensive areas of the U.S., so you may need to save up for a higher down payment. Also, if you have existing debt, you should add that to your total and make sure it doesn’t represent more than 29% of your gross income because lenders look at your debt-to-income ratio when they’re deciding if you’re a good risk.

What About Other Housing Expenses?

Remember that lenders want to lend you the absolute max that you can afford, but you’re also going to have other things in your housing budget besides the mortgage costs. Be sure you’re estimating the costs of homeowners insurance, homeowners association fees, maintenance costs, and utilities. And don’t forget property taxes! These aren’t exactly hidden costs, but people don’t always realistically estimate them when they’re making their purchase decision.

How Much for Your Down Payment?

Put at least 20% down on your home purchase, and you’ll avoid the extra costs of PMI (private mortgage insurance.) Plus, you just want to put down as much money is possible so you pay less in interest in the long run, which really adds up. Remember, you have to pay closing costs, too, so make sure you estimate this in your house budget.

The Line Items

No one wants to end up in a situation where you’re totally in over your head financially or house-poor. Let’s review: your goal is to spend no more than 25% of your gross income for your housing budget, slightly more including your other existing debt. It needs to include your mortgage, plus additional expenses like taxes, maintenance, utilities, and insurance. Plan for paying as much as possible for the down payment to reduce your overall interest costs. Voila! You’ve created your first home budget!