It’s fun to fantasize about a dream home with every imaginable bell and whistle, but it’s much more practical to purchase only what you can reasonably afford. With interest rates rising, monthly mortgage payments will be higher, so you might have to adjust your budget to find an affordable home.

Your first savings goal is down payment.

Saving for a down payment is crucial so that you can put the most money down — preferably 20 percent to reduce your mortgage loan, qualify for a better interest rate and avoid having to pay private mortgage insurance,” Woroch explains. It’s equally important to build up your reserves. One rule of thumb is to have the equivalent of roughly six onths’ worth of mortgage payments in a savings account, even after you fork over the down payment. This cushion can help safeguard you if you lose your job or something else unexpected happens.

Also, don’t forget closing costs, which are the fees you’ll pay to finalize the mortgage. They typically run between 2 percent to 5 percent of the loan’s principal. They don’t include escrow payments, either, which are a separate expense. Generally, you’ll also need around 3 percent of the home’s price for annual maintenance and repair costs..