Purchasing a home is an exciting milestone, but before you can walk through the door of your dream house, there’s one crucial step: getting your finances in order. Creating a budget that a mortgage lender will approve doesn’t just help you get the keys; it sets the foundation for your financial well-being during your entire homeownership journey. Here’s a guide to going from zero to zen when building a mortgage-approved budget.

1. Know Your Income (and Its Stability)

The first step in creating a solid budget is understanding how much money you have coming in every month. Lenders look for consistent income because it shows them that you can reliably make your mortgage payments. Gather proof of income, such as pay stubs, tax returns, or business earnings if you’re self-employed.

• Zen Tip: If your income fluctuates, base your budget on your average income over the past year to ensure it’s realistic and sustainable.

2. Assess Your Monthly Expenses

Before you determine how much house you can afford, you need to know where your money is going. Review your bank statements and credit card bills to track monthly spending. Make sure to categorize all expenses, including:

• Rent (if applicable)
• Utilities
• Groceries
• Transportation (gas, car payments, public transit)
• Insurance
• Entertainment and dining
• Subscriptions

This will give you a clear picture of your current spending and help identify areas where you might cut back.

• Zen Tip: Use a budgeting app to automatically track expenses and categorize spending, making it easier to review.

3. Factor in Your Debt-to-Income Ratio

Mortgage lenders will scrutinize your debt-to-income (DTI) ratio—how much of your monthly income goes toward paying off debt. A lower DTI improves your chances of mortgage approval. Typically, lenders prefer a DTI of 43% or lower, meaning that your total monthly debt payments, including the new mortgage, should not exceed 43% of your gross monthly income.

• Zen Tip: If your DTI is too high, focus on paying down existing debt, like credit cards or car loans, before applying for a mortgage.

4. Create a Cushion: Savings Matter

Lenders want to see that you have some savings set aside, not just for the down payment but also for emergency expenses. Aim to have at least three to six months’ worth of living expenses saved up. This shows lenders you’re financially stable and capable of handling unexpected situations without missing mortgage payments.

• Zen Tip: Set up automatic transfers to a savings account each time you get paid to steadily build your cushion without thinking about it.

5. Understand the 28/36 Rule

A good rule of thumb when budgeting for a mortgage is the 28/36 rule. This means:

• You should spend no more than 28% of your gross monthly income on housing-related expenses, including mortgage payments, property taxes, and insurance.
• Your total debt payments (including the mortgage) should not exceed 36% of your gross income.

Following this rule ensures that your mortgage is affordable and won’t stretch your finances too thin.

6. Plan for Additional Costs

Buying a home isn’t just about the mortgage. There are several additional expenses to consider:

• Property taxes
• Homeowners insurance
• Private mortgage insurance (PMI) if your down payment is less than 20%
• Home maintenance and repairs
• Closing costs, typically 2-5% of the loan amount

Make sure these extra costs fit into your budget comfortably.

• Zen Tip: Build a “home fund” separate from your emergency savings to cover unexpected repairs or upgrades once you own the home.

7. Adjust and Fine-Tune Your Budget

Once you’ve considered your income, expenses, and future mortgage, it’s time to adjust your budget. Eliminate non-essential spending, negotiate bills, or look for ways to increase your income. Every dollar saved can bring you closer to your dream home.

• Zen Tip: Revisit and refine your budget every month to ensure you’re staying on track and building a financial cushion for future homeownership.

8. Get Pre-Approved

Before making any offers on a home, get pre-approved for a mortgage. This gives you a clear understanding of how much you can borrow and shows sellers you’re a serious buyer. The pre-approval process also helps you gauge whether your budget is on the right track.

• Zen Tip: Get pre-approval letters from at least two or three lenders to compare terms and rates.

The Road to Financial Zen

Creating a mortgage-approved budget is about finding balance—between your income, expenses, and future homeownership goals. With careful planning and thoughtful adjustments, you can transition from financial uncertainty to a calm, confident approach to buying your home. Financial peace of mind isn’t just a goal; it’s an essential part of owning a home. Stick to your budget, be mindful of your spending, and soon enough, you’ll be unlocking the door to a home you can afford and enjoy for years to come. Give us a call at Fidelis Mortgage Corporation ( 717-283-0900 ) or contact us here for more information on what you need to start your home mortgage process!