What to Consider When Buying a New Home

Buying a new home. You might be thinking where do I even start…

How much can you afford?

**Spoiler alert! It is highly dependent on your financial situation, there isn’t a one size fits all rule to go by!**
If you research how much you can afford it won’t take long to find the 28/36 rule. This rule helps mortgage lenders to determine the max monthly amount of debt payments a consumer can safely assume. The rules state that the maximum amount for total housing cost should not exceed 28% of gross monthly income and a consumer should not exceed 36% on all debt payments combined.

But not so fast! Your financial situation heavily dictates if this is what you can afford. Keep in mind that 28% of the total housing cost includes mortgage payments, homeowners’ insurance premiums, HOA fees, and property tax. It doesn’t take into consideration downpayment, closing costs, utilities, yearly maintenance, furniture, and any repairs or renovations. The 36% on the other hand includes things like car payment, student loans, credit cards, all dept that requires a monthly payment. Let’s say you earn $100,000 a year or $8,333 a month. According to the rule, your monthly housing payment should not exceed $2,333. Your total debt payments per month should not exceed $3,000.

Before making an offer to buy a house, consider the impact on your monthly budget. Will you be able to vacation or eat out when you want? Will your kids need to switch to a lower-cost daycare? Will your next car be a cheaper car brand?


20% down, if you can’t afford 20% down while maintaining your emergency fund, you can’t afford the house.

Without 20% down you will have to pay PMI (Private Mortgage Insurance). PMI is calculated as a percentage of your loan. Typically, around 1% of the loan value but varies based on the size of the loan, your down payment, debt-to-income ratio, and credit score.

Closing costs

The bulk of closing costs pay for the transfer of the title of the house from the seller to the buyer and cover the commissions to the real estate agents. Typically paid disproportionately by the buyer. Expect to pay around 3-4% of the purchase price. The closing costs also include property taxes, HOA fees, and homeowners’ insurance.


You will need to create a list of all the utilities. Gas, power, water, trash, internet, etc. In most cities, these are all provided by separate companies based on your location. Your real estate agent should point you in the right direction to get things set up.


One of the few guarantees in life is taxes, you will owe it for as long as you own the property. Taxes are calculated based on the city you live in. If the home you buy is your primary residence, you will need to visit your local county office to apply for homestead exemption. This exemption will reduce the amount of taxes you owe on the property of your primary residence.

Picking the right experts

The home-buying process will involve lots of folks in different industries. Picking the wrong ones can make the process a nightmare. Spend time to find a trustworthy real estate agent, mortgage broker, insurance broker, and home inspector, just to name a few.

These experts can do many things to help, like finding the best neighborhoods, lowest interest rates, best insurance coverage for the money, and avoiding buying a house with costly repairs.

Needs vs Wants

This is all about sacrifice. Your first house will likely not be your forever home, but we do want to think long term. Over the next 5-10 years, what do you have to have versus what would be nice. Are you willing to sacrifice a long commute for more square feet? Do you need a big backyard, or will a local park do? Do you want restaurants and chuck-e-cheese close by or do you prefer the peace and quiet?

Tim Jones

Tim Jones

Tim Jones CFP® is a Financial Planner and Vice President at BCR Wealth Strategies.