Budgeting made easy! Part 1

Most people think they have it all under control. They get a steady paycheck, and know how much they can afford based on what they have now. I think that is wonderful! Those same people are thinking about starting the American Dream of home ownership, and think that the ease will transfer just as smoothly.
Homeownership can be easy, but properly planning is the essence of homeownership without stress. I get approached all the time by people looking to buy, and they currently pay rent of let's say $1000, and want to buy a home for $500,000. Being conservative, that will translate into a new mortgage of $3-4000 per month. These same people haven't been able to save a dime for a down-payment, have credit card debt, large car payments, and occassional collections. The reality is, without a properly WRITTEN DOWN Budget, homeownership can wear on your emotions.
My first word of advice, is to write ALL of your expenses. Not just go over them in your head, but truly write them down. See where your money is going now, and see if these expenses will continue as you own a home. Things like rent will go away, but will be offset by most likely higher mortgage payments. When I put on Homebuyer Seminars and speak with homeowners, I will give them a worksheet to write everything out. This will make the reality of your budget come to life. Maybe you can afford the $500,000 home, I just want you to be sure.
First Step: is to estimate your monthly cash-flow through the month. When do you get paid, and how much is the amount to you after taxes, and all retirement contributions?
Second Step: What are your major monthly expenses. For example, a car payment, car insurance payment, credit card payments, or basically anything that would be reported on your credit report.
Third Step: What do you routinely spend on food. Everyone has to eat, and funding that daily trend can be expensive. You don't want to buy a home and eat Tap Ramen every day. Or do you?
Fourth Step: Consider all expenses that will come with a new property. These expenses will be Water, Garbage, Gas and Electric, Cable, Phone, Cell Phone, Internet, the list can go on and on...
Fifth Step: Subtract all of the Second Step, Third Step, and Fourth Step, from the First Step and see what that gives you. This is your disposable income, or the amount of money you have leftover every month to spend on a mortgage. I wouldn't recommend taking that number and assuming that that should be your new mortgage payment, you should realize that you WILL have other expenses that come up, like car repairs, entertainment, and others, but it is a starting point.

Stay tuned for part two! I will talk about how to figure out exactly what you can afford!



Jon Vetter
San Francisco Loan Officer, for your San Francisco Home Loan