Key takeaways
12 min read
- Set your budget by the monthly payment you're comfortable with, not the largest loan a lender will approve.
- Many lenders look for housing costs at or below 28% of gross income and total debts at or below 36%.
- Plan for three upfront costs: the down payment, closing costs (often 2% to 6%), and an emergency fund.
- Check for first-time buyer programs before you decide how much to put down.
In this chapter
1Figure out what you can comfortably afford
Most buyers start with the wrong question. They ask how much a lender will approve. The better question is how much you can pay every month and still sleep well, save for retirement, and handle a surprise bill.
Lenders approve based on ratios and credit. They don't see your daycare costs, your travel plans, or the fact that you want to keep investing. Your budget has to account for all of that, so it usually lands below your approval amount.
Track a real month of spending
Pull your last two or three months of bank and card statements, or connect a budgeting app, and sort spending into fixed costs (rent, car, insurance, loans), flexible costs (food, travel, shopping), and savings. The goal is one honest number: what's left each month after everything you won't give up.
Your number: $4,650 a month for housing
This buyer pays $2,900 in rent today. That goes away when they buy, so everything left after debts, daily spending, and savings is room for the full housing payment.
Illustrative numbers. Your housing payment also includes property taxes, insurance, and any HOA dues, so leave a cushion for those.
Monthly budget example
- Take-home pay
- $8,400
- Car, loans, and cards
- −$1,050
- Food, utilities, and transport
- −$1,700
- Savings you'll keep
- −$1,000
Room for housing
$4,650
Show lenders steady income
Lenders like to see about two years of consistent income. A job change in the same field usually isn't a problem. If you're self-employed, expect to share two years of tax returns, and know that lenders often average your income across those years.
2Calculate your debt-to-income ratio
Your debt-to-income ratio (DTI) is the share of your gross monthly income, before taxes, that goes to debt payments. It's one of the first things a lender checks, because it shows how much room you have to take on a mortgage.
Lenders often look at two versions. The front-end ratio counts only housing costs. The back-end ratio counts housing plus every other monthly debt, like car loans, student loans, and minimum card payments.
- Housing 28%, $1,960
- Other debts 8%, $560
- Everything else 64%, $4,480
28%
Front-end ratio
Housing only: mortgage, property taxes, insurance, and HOA. Up to $1,960 a month in this example.
36%
Back-end ratio
Housing plus car, student loans, cards, and other debts. Up to $2,520 a month in this example.
Many loan programs allow higher ratios for borrowers with strong credit or savings. Staying near 28/36 leaves room for surprises.
How to lower your DTI before you apply
Pay off small balances first
Clearing a card or a small loan removes the whole monthly payment from the calculation.
Avoid new financing
A new car payment can cut your buying power by tens of thousands of dollars.
Document all of your income
Bonuses, commissions, and side income can count if you can show a steady history.
Consider a co-borrower
A partner or family member on the loan adds their income, and their debts.
Questions about financing? Send your team a message.
Check and strengthen your credit
A higher score can mean a lower rate, and a lower rate can save thousands over the life of a loan.
A TurboHome commission rebate can be applied toward a rate buydown to reduce your interest! Ask your lender how this would impact your payments.
Your credit score affects which loans you qualify for and the rate you're offered. A score above 700 makes you an attractive borrower, and the best pricing usually goes to scores of 740 and up.
740
Best conventional rates usually start
640
Most USDA lenders
620
Conventional, and most VA lenders
580
FHA with 3.5% down
500
FHA with 10% down
VA and USDA loans have no official minimum. Lenders can set their own requirements, and your lender will confirm what applies to you.
Payment history
Amounts owed
Length of history
New credit
Credit mix
FICO's published score weights.
Pull your free reports from Equifax, Experian, and TransUnion at AnnualCreditReport.com. Look for accounts you don't recognize, late payments that were actually on time, and old debts that should have aged off. Disputing errors is free and can raise your score.
Quick ways to strengthen your score
- Pay card balances down below 30% of their limits, and lower if you can
- Turn on autopay so nothing goes past due
- Hold off on opening new cards or loans
- Keep older accounts open to protect your credit history
- Ask your lender about a rapid rescore if you pay down debt mid-process
4Save for the three big upfront costs
The down payment gets most of the attention, but it's only one of three cash needs. Plan for all three so closing day doesn't drain your accounts.
Most buyers fund these from savings, gifts from family, assistance programs, or a mix. Lenders will ask where the money came from, so keep large deposits documented.
Down payment
0% to 20%
Depends on your loan type. Less than 20% down usually adds mortgage insurance.
Closing costs
2% to 6%
Of the purchase price, for lender, title, escrow, and other fees.
Emergency fund
3 to 6 months
Of expenses, kept in reserve after you close.
1. The down payment
You don't always need 20%. Some conventional loans allow 3% down for qualified buyers, FHA loans allow 3.5%, and VA and USDA loans can allow 0% for eligible buyers. Putting down less than 20% on a conventional loan usually means paying private mortgage insurance (PMI) until you build enough equity.
3% down
Loan of $582,000. Conventional; PMI required
3.5% down
Loan of $579,000. FHA; mortgage insurance required
10% down
Loan of $540,000. PMI still required on conventional
20% down
Loan of $480,000. No PMI on conventional
2. Closing costs
Closing costs cover the lender, title, escrow, appraisal, inspections, and recording fees. They often run 2% to 6% of the price, or $12,000 to $36,000 on a $600,000 home. Your lender's Loan Estimate will list them line by line.
A TurboHome commission rebate could help you bridge the gap
$18,000
Buyer's agent commission at 3% of $600,000
$10,000
TurboHome flat fee
$8,000
Estimated back to you
Plug in a price and see your estimated TurboHome rebate in seconds. This can be applied directly to your closing costs.
Illustrative example. Ask your lender how a commission credit can be applied to your loan, since lenders set limits on credits at closing.
3. An emergency fund
Keep cash aside after closing for the water heater, roof leak, or job change that shows up at the worst time. Three to six months of expenses is a common target, and some lenders want to see reserves left in your accounts after closing.
5Budget for the true monthly cost of owning
Your mortgage payment is more than principal and interest. Lenders call the full payment PITI: principal, interest, taxes, and insurance. Then add HOA dues, mortgage insurance, and upkeep to see what owning really costs.
Principal
The part of each payment that pays down your loan balance.
Interest
What the lender charges. Try a mortgage calculator with a few rates and prices.
Taxes
Paid to your county, often through escrow. California starts at a 1% base rate plus local levies; Texas rates are typically much higher.
Insurance
Covers the structure, belongings, and liability. Get real quotes early, especially in fire-prone areas.
Then add these, if they apply
- Mortgage insurance
- PMI on conventional loans under 20% down, or FHA premiums. Your lender will quote it on the Loan Estimate.
- HOA dues
- Common for condos, townhomes, and planned communities. Ask for the amount and any pending special assessments.
- Maintenance
- Set aside 1% to 3% of the home's value each year for repairs and upkeep.
Look for first-time buyer help
Help is available, and plenty of buyers never ask.
You may count as a first-time buyer even if you owned before. Many programs use HUD's definition: anyone who hasn't owned a principal residence in the past three years.
Federal loan programs
3.5% down
With a credit score of 580 or higher
As little as 0% down
For eligible veterans and service members
As little as 0% down
For homes in eligible areas
State housing agencies
California
CalHFA loans and down payment assistance
Texas
TSAHC and TDHCA programs
Washington
Washington State Housing Finance Commission
Cities, counties, and some employers offer grants or forgivable loans too. Programs often have income limits, price caps, and a required homebuyer education course, so check the details early.
Not sure what you qualify for?
Your TurboHome team can connect you with some of our trusted lending partners for a free, no-commitment consultation to explore financing programs in your area.
Common questions
How much house can I afford?
Start with the monthly payment you're comfortable with, including taxes, insurance, and HOA dues. Many lenders like housing at or below 28% of gross income, but your own budget may call for less.
Do I really need 20% down?
No. Conventional loans can go as low as 3% for qualified buyers, FHA requires 3.5%, and VA and USDA loans can require 0%. Putting down less than 20% usually adds mortgage insurance.
What credit score do I need to buy a home?
Typical minimums are about 620 for conventional loans and 580 for FHA loans with 3.5% down. Scores above 740 usually get the best rates.
How much should I budget for closing costs?
Plan for 2% to 6% of the purchase price. With TurboHome, you get the buyer's agent commission back, minus our low flat fee, which can help offset these costs.