Creating a Budget for Your New Home Purchase: A Realistic Approach
Hey there, future homeowner! We’re a the Gervais Mortgage Team, a husband-and-wife mortgage broker team in Phoenix, AZ, and we know that buying a home is one of the biggest financial moves you'll ever make. Before you start picking out paint colors, let’s talk about creating a budget that works for YOU.
A budget isn’t about restricting yourself—it’s about empowering you to make smart decisions. Here’s how to create a realistic home-buying budget, along with some down payment options that might surprise you!
Four Popular Budgeting Methods
Different budgeting methods work for different people. Here are four approaches to help you stay on track while saving for your dream home.
1. 50/30/20 Budget
This method keeps things simple by splitting your income into three categories:
Needs (50%): Housing, groceries, childcare, utilities.
Wants (30%): Dining out, entertainment, shopping.
Savings & Debt (20%): Emergency fund, down payment savings, debt payoff.
If housing eats up more of your income, tweak the percentages! The key is balance.
2. Zero-Based Budgeting
Every dollar has a job. You assign every bit of your income to a category so that at the end of the month, you’re left with zero unallocated dollars.
Pro tip: Apps like You Need a Budget (YNAB) make this approach easier.
3. Envelope Budgeting (a.k.a. Cash Stuffing)
Use physical cash envelopes for different spending categories like groceries, dining, and entertainment. When the envelope is empty, you stop spending! You can also use digital tools like Goodbudget to track virtual envelopes.
Our friends paid off their home in two years by using this Ramsey-focused tactic.
4. Pay-Yourself-First Budget
Flip the script—before spending on anything else, put money toward savings and debt repayment. This ensures you hit your financial goals before life’s little splurges take over.
Steps to Build Your Home-Buying Budget
1. Calculate Your Expenses
Look at your past few months of spending. Your bank or credit card app might even categorize expenses for you.
2. Calculate Your Income
Include paychecks, tips, side gigs, bonuses—anything that contributes to your cash flow. If your income varies, average it over several months.
3. Set Realistic Goals
What’s your budget for a home? What’s your target down payment? Knowing these numbers keeps your house-hunting dreams within reach.
4. Choose a Budgeting Method
Pick the one that feels right for your lifestyle and financial goals.
5. Track Your Spending
Budgeting apps can automate this, or a simple spreadsheet works, too!
6. Adjust as Needed
Life changes. Your budget should be flexible enough to adjust along the way.
Down Payment Options: You May Need Less Than You Think!
Many buyers assume they need 20% down, but there are great low down payment options:
FHA Loan – 3.5% Down: Perfect for first-time buyers with lower credit scores.
First-Time Homebuyer Conventional Loan – 3% Down: A great option for those with good credit.
VA Loan – 0% Down: Available to eligible veterans and active military members—thank you for your service!
How Budgeting Helps Your Credit
Budgeting doesn’t directly impact your credit score, but it does help in two major ways:
Ensures you pay bills on time (biggest factor in your credit score).
Keeps credit card balances low, reducing your credit utilization ratio.
Stick to Your Budget Like a Pro
Remember your “why”—whether it’s buying your first home or upgrading, keep your goal in mind.
Avoid budget burnout—if you’re feeling restricted, adjust! A realistic budget is one you can actually stick to.
Celebrate milestones—every dollar saved brings you closer to homeownership!
Ready to Take the Next Step?
If you’re dreaming of homeownership but aren’t sure where to start, we’d love to help! Let’s chat about your budget, loan options, and how to make your home-buying journey as stress-free as possible.
