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Budgeting for Your First Home: Step-by-Step Guide

June 2, 2025

Buying your first home feels overwhelming, especially when everyone throws around numbers and percentages that seem impossible to reach. The truth is, with the right budgeting strategy, homeownership is more achievable than you think.

The 28% Rule suggests your mortgage payment shouldn't exceed 28% of gross monthly income. However, consider your entire financial picture, including student loans, car payments, and lifestyle expenses.

Factor in All Costs beyond the mortgage: property taxes, insurance, HOA fees, and maintenance typically add 1-3% of the home's value annually.

Emergency Fund Priority Keep 3-6 months of expenses separate from your down payment. Homes require unexpected repairs, and you don't want to be house-rich but cash-poor.

20% Down eliminates PMI but isn't always necessary. FHA loans require just 3.5% down, and VA loans offer zero-down options for qualified veterans.

First-Time Buyer Programs in Tennessee offer down payment assistance and favorable terms. Many require financial education courses that actually provide valuable budgeting skills.

Gift Funds from family can supplement savings, but lenders require proper documentation and may have restrictions.

Track Spending for three months to understand actual expenses versus perceived expenses. Most people underestimate dining out, entertainment, and subscription services.

Reduce Variable Expenses temporarily while saving. Cancel unused subscriptions, cook more meals at home, and find free entertainment options.

Automate Savings by setting up separate accounts for down payment, closing costs, and moving expenses.

Establish a Home Maintenance Fund immediately. Budget 1-2% of home value annually for repairs and maintenance.

Adjust Insurance Policies to reflect new homeowner status. Bundle home and auto insurance for potential savings.

Track New Expenses closely for the first year to establish realistic long-term budgets.

Build Equity Strategically through extra principal payments or home improvements that add value.

Contact Ole South to view available properties or visit our building process to learn how we can guide you through every step of owning your first home.