Budgeting for a New Home

BUDGET for New Home Expenses

Having a clear picture of your current spending habits is important when buying a home, it will assist you in developing a forward-looking budget for how you’ll spend your money with a new home. This will help you decide on a manageable monthly mortgage payment.
 


Get a Realistic Look at Your Current Spending

There are several ways to look at your spending. Consider using one or more of the following:

  • Review your checking account and credit card history for the past several months.

  • Consider using a personal financial management tool to help track your spending. Several online tools and apps are available.

  • Save your receipts and use a spending tracker. Or, carry a small notebook with you to record all your expenses. Don’t leave anything out!
     

Make an as-is Monthly Budget that Accurately Reflects Current Spending

  • Make sure to include a miscellaneous category. Whether it is a car repair or an unexpected trip, there's always something out-of-the-ordinary.

  • If you make regular savings contributions to an emergency fund or other savings goal, include these in your budget.

  • Look at the past several months to make sure you don’t miss less frequent expenses like insurance payments, medical expenses, school clothes, tuition, support for family members, seasonal and recreational costs, gifts, charity, and vacations.
     

Add Up All the Categories and Compare this Budget to Your Take-Home Income

How much is left over? Check your bank statements carefully to see whether your budget is realistic. If the amount you have left over in your bank account doesn’t match the amount your budget says should be left over, re-examine your spending patterns to see if you need to adjust the numbers in your budget.
 

Decide How Much You Can Afford on a Monthly Mortgage Payment

  • Your total monthly house payment includes mortgage principal, interest, property taxes, homeowner's insurance, and mortgage insurance, if applicable.

  • Estimate expenses for electricity, gas, cable, water, and other required monthly costs of homeownership such as condo or Homeowner’s Association (HOA) dues. Also, estimate expenses for home maintenance and improvements. Make sure you will have enough money to pay for these costs in addition to your total monthly payment.

  • Remember to think about future goals and budget for them accordingly.
     

Make Budget Adjustments

It may be necessary to make adjustments to your budget, review your budget monthly and don't be afraid to make adjustments as needed. Make sure your adjusted budget adequately accounts for all the costs of homeownership. As you move forward in your home search and mortgage process, you'll gather additional information that will help you refine your assumptions. Come back to this step and revisit your budget and your calculations as you gather more information.

 


Addition Information to Consider

Most homeowners pay their property taxes and homeowners insurance in their mortgage payment. This is known as an escrow account. If you choose to not have an escrow account, you will still have to pay these costs. An escrow account lets you put aside the money monthly so that you won’t have a big expense during the year. Not all loan programs or mortgage lenders will allow you to not have an escrow account.

Some types of homes may have additional required monthly expenses. If you’re buying a condo, co-op, or a home in a planned unit development (PUD) subdivision with shared services, you usually have to pay condo fees or Homeowners Association (HOA) dues. These fees vary widely depending on the amenities provided by the community. Consider these fees carefully when comparing potential homes. These fees will affect the amount of mortgage you will qualify for. Condo or HOA fees are usually paid separately from your monthly mortgage payment.

 


Avoid Pitfalls

Owning a home means more than just trading a rent payment for a mortgage payment. Homeowners are often surprised by the extra costs of owning a home, including insurance, taxes, and association or condo fees. You also have repair costs, upkeep, and may want to make home improvements and upgrades. A bigger space may need additional furnishings. Finally, there are things you pay for as a homeowner that may have been included in your rent previously, such as water, trash pickup, and other utilities. Avoid pitfalls by making sure to prepare yourself now, before making an offer on a new home.