1. Set Your Budget
Before you start shopping for a home, you must determine your budget. As a general rule, your total monthly home payments shouldn't exceed 36% of your gross monthly income. For example, if your total gross monthly income is $5,000, your monthly housing payments - including the principal and interest on your mortgage, taxes, and homeowner's insurance -
should not exceed $1,800 (36% of $5,000).
Be sure to review the remainder of your monthly obligations as well, including car payments, credit card payments, and other bills. You should aim to keep all monthly obligations to less than 45% of your gross monthly income.
2. Gather Your Cash
Now it’s time to gather your cash so you know how much you can put towards a down payment. Depending on the type of home loan you choose, you will be required to make a down payment ranging between 3.5% and 20% of the price of the home. (One notable exception is a VA loan, a government-backed mortgage for veterans that requires no down payment.)
Please note that if your down payment is less than 20%, you will have to pay for private mortgage insurance, which adds an additional 0.5% of the total loan amount to your mortgage payments.