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How to budget for a house

As a new homeowner, your down payment isn’t the only thing to consider.

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A home is one of the largest and most exciting purchases you’ll likely ever make in your life. Learn the best ways to budget for a house, hidden homeownership expenses to watch out for and tips to help you reach your goal.

How do I budget for a house?

A few steps to kickstart your budget and begin saving:

1. Establish your starting point

How much do you expect to pay for your new house? Research the cost of homes in your area and determine how much you can realistically afford.

2. Break down expenses

Gather every piece of information you can on your current financial picture. Look at your savings, mandatory monthly expenses, discretionary spending, debts, investment accounts and more. Having a clear picture of these items allows you to create a realistic plan for how soon you can buy your house.

3. Create your budget

Add up all your income. Then, add up all your expenses. Subtract your total expenses from your total income. If the number is positive, congratulations – you’re spending less than you make. If it’s negative, you may need to cut back.

4. Budget to zero

If you end up with extra money in your budget, put it to work. Dedicate a certain amount toward saving for a home, building your emergency fund, debt repayment or any other goals you have.

5. Pick an account

Choose which bank account you’ll store your savings in every month until you can purchase your home.

6. Set up automatic transfers to savings

Once you’ve chosen your bank account, set up automatic payments. If you know you’ll save $500 every month, for example, have $500 automatically deposited into your account. This takes the guesswork and pressure off of having to do it yourself.

7. Review your budget frequently

By proactively reviewing your budget, you’re able to adjust your plan as needed to help accomplish your goals.

How much should I budget for a house?

While housing costs may vary, there are some common upfront costs to budget for.

  • Down payment. You’ll need to budget at least 20% of your home’s expected value if you want to avoid paying private mortgage insurance every month. Some lenders accept down payments as low as 3% — and 0% for USDA and VA loans — so how much you need to save will vary by loan type.
  • Closing costs. Closing costs can run anywhere from 2% to 5% or more of the total loan amount, depending on your lender. This means if you purchase a home for $300,000 with a 3% closing cost, you’ll pay $9,000 upfront, not including the down payment.
  • Full home inspection. Once you find a home, you’ll want to have it professionally inspected for any potential issues. Inspection costs vary by location and size of the home.

Additional expenses

Once you purchase a house, there are recurring expenses to budget for:

  • Repair costs. Consider the size and age of your home when budgeting for repair costs. If you buy an older home, you may want to budget more per month than you would a brand new home. If your air conditioner broke, for example, it could cost $5,000 on average to replace it.
  • Maintenance costs. This includes any recurring monthly costs such as lawn care, pest control, pool care and fireplace upkeep.
  • Utilities. An average-sized household spends $2,060 a year on utilities. Similar to maintenance and repairs, your utilities could be more depending on the age and size of your house. Be realistic when budgeting for these new expenses.

How much of my income should I spend on my mortgage payment?

This varies based on your unique circumstances, but most professionals recommend spending no more than 30% of your gross monthly income on housing costs. This percentage includes mortgage payments, insurance, property taxes and HOA dues.

What is the 50/20/30 budget rule?

This popular budgeting rule states that you should spend no more than:

  • 50% of your income on needs — including housing, transportation and food
  • 30% on wants — including dining out, shopping, entertainment and travel
  • 20% on savings — including debt payoff and reaching long-term financial goals

Budgeting software and apps to help you budget for a house

NameAvg. price per year (USD)Free version?Platforms
CountAbout
CountAbout
$9.99NoPC
Mac
iOS
Android
Read review
Mint
Mint
FreeYesPC
Mac
iOS
Android
Read review
You Need a Budget (YNAB)
You Need a Budget (YNAB)
$84NoPC
Mac
iOS
Android
Read review
Quicken
Quicken
$34.99NoPC
Mac
iOS
Android
Read review
BudgetPulse
BudgetPulse
FreeYesPC
Mac
PocketGuard
PocketGuard
$3.99YesPC
Mac
iOS
Android
Wally
Wally
FreeYesiOS
Android
Goodbudget
Goodbudget
FreeYesPC
Mac
iOS
Android
Read review
Simple
Simple
FreeYesPC
Mac
iOS
Android
Read review
Personal Capital
FreeYesPC
Mac
iOS
Android
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Tips to budget for a house

Other ways to budget for house payments

There are other methods that can help you cover costs or accelerate savings, such as:

  • Special offers. Lenders often run special promotions. These deals can include mortgage rate guarantees, money off closing costs, waived application fees and more.
  • Cashback rewards. If you receive cash back from credit cards, stash away this extra money every month as you save for your house. These little amounts may not seem like much, but they add up over time.
  • Interest. Does your bank account earn interest every month? Save this spare change to help you reach your monthly savings goals.
  • Tax refunds. Boost your savings by depositing next year’s tax refund into your housing fund.
  • Extra money. Most of us receive some form of extra money throughout the year whether it be money from a birthday, holiday, or side hustle. Saving these extra dollars will help you reach your savings goals even quicker.

Bottom line

Deciding to purchase a home is an exciting time, but being financially prepared is crucial. Before you begin working on your budget, consider comparing bank accounts that accrue interest and allow you to save for your house automatically.

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