Alexandra Lashner and her husband were excited to buy their first home earlier this year.

They saved up enough for a 20% down payment and had no debt. Yet they still couldn’t find a house, even after bumping their budget up to $300,000 from $250,000.

“A lot of homes have become out of reach,” said Lashner, who is 27 and lives in Bensalem, Pennsylvania.

“Homes we were once able to afford a year or two ago are now completely out of the question.”

The tight supply of homes on the market has pushed prices higher. In August, the median price of an existing home was $356,700, a 14.9% increase from August 2020, according to the National Association of Realtors.

That’s left many first-time homebuyers on the sidelines. In August, they were responsible for just 29% of all sales. Historically, they make up 40% of all buyers.

In order to get into a home, some buyers are blowing their budget. In 2021, 28% purchased homes above their initial estimate, according to Zillow.

Yet creating a budget is very important before you decide to buy a home. Here’s what you need to know.

A down payment of 20% of the home’s cost may get you a more favorable interest rate and help you avoid paying for primary mortgage insurance or PMI.

Typically, PMI premiums range from $30 to $70 per month for every $100,000 borrowed, according to Zillow.

That said, you don’t need to come up with such a large amount of money for a down payment.

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Typical first-time homebuyers put down 7%, according to the National Association of Realtors. Some loans allow you to go down to 3% or 3.5%. You don’t have to put anything down, or pay PMI, if you get a loan through the Department of Veterans Affairs.

There is also assistance available to those who qualify, including grants and forgivable loans. Check with your state and lender to see what is available in your area.

Just because you get approved for a certain mortgage amount doesn’t mean you should spend that much.

First, look at your monthly expenses, such as car loans, phones and daycare. Then, figure out what you can afford to spend each month on a mortgage payment, and make a decision from there, said financial advisor Jacqueline Cooper, founder, president and CEO of Financial Education Associates in Dorchester, Massachusetts.

Remember, you’ll also be paying property taxes to your local government, which is based on the assessed value of your property and your town’s tax rate. On top of that, you’ll have to pay homeowners insurance, which costs typical homeowners slightly less than $1,000 a year.

You can also look to make cuts in other areas of your budget in order to afford a higher payment, as well as looking into locations that may be less expensive. As people are deciding not to return to the office five days a week, they are moving farther away, said Jessica Lautz, vice president of demographics and behavioral insights at the National Association of Realtors.

“Younger buyers are moving to small towns and suburban areas,” she said.

Have at least a few months of mortgage payments saved before you buy a home, Cooper suggests. This way you are protected if you have any disruption in income.

Also, have some money in reserves for the unexpected.

“Something may break once you are in the home or you may want to decorate it or change the finishes within the home,” Lautz said.

There are also regular costs to homeownership, such as potential homeowners association fees or or lawn equipment to maintain the property, as well utilities such as heat and hot water.

There are a number of fees involved in the home-buying process, wrapped up into what is generally referred to as closing costs.

They include things like an application fee, bank appraisal of the home’s value, attorney fee, escrow fee, homeowners insurance, title insurance, credit report, loan origination fees, transfer taxes, title search fee and recording fees.

It adds up to between 2% and 5% of the home price and is due at the time you close on the house.

In this competitive market, some buyers are waiving home inspections, which look at things like the electrical system, roof and condition of the plumbing, heating and air conditioning systems.

About 23% of buyers bypassed inspections in August, according to the National Association of Realtors.

“That is the biggest budget buster to me,” Cooper said. “There are things we don’t notice and we don’t have the experience to determine if this is an OK thing or not.”

If something goes wrong, it could end up costing you a lot of money.

The Lashners lost out on two homes because the other offers went way over asking price and waived all inspections.

They decided to postpone homeownership for another couple of years.

“It was just exhausting and completely unsustainable,” Lashner said.

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