Budgeting For New Homeowners: Tips From the Experts

Buying a house is a thrilling experience, full of firsts, excitement, and new horizons. However, once the buzz of your new purchase fades, you might find that the cost of improvements, maintenance, repairs, and monthly utilities add up quickly. To avoid overextending yourself financially when expenses start to come in, it’s critical to take the time to create a detailed budget before you start house hunting.

In this article, we gathered advice from experts in the budgeting field so you can know everything that has to be considered before you buy your first home.

Factors to consider when buying a home

Financial health

First and foremost, first-time homebuyers should take a look at their financial health before purchasing a home. You’ll need a minimum credit score of about 620 for most mortgages. An even higher credit score can fetch you a better interest rate, saving you thousands in the long run.

It’s also a good idea to pay down major sources of recurring or high-interest debt before you buy a house. Taking on a mortgage payment is a considerable expense that may not be realistic if you also have to make big payments on car loans, student loans, and credit cards.

Sticking to your budget

When we think about making a real estate purchase, it’s easy to get caught up in the list price of a home and forget about the expenses you’ll be responsible for after the sale closes. Budgeting is a time for realism over optimism, so try not to underestimate expenses.

It’s a good idea to create a new home budget to ensure you can make ends meet as a homeowner. Unfortunately, many real estate websites severely underestimate the monthly costs of homeownership, so they’re not good tools for this purpose. You’ll want to do your own calculation including the following monthly expenses:

Mortgage payment. This cost depends on the price of your home, your down payment, and how much you need to borrow. Many calculators can help you estimate this expense. Budget to cover PMI as well if you don’t pay at least 20% in your down payment.
Home insurance. Home insurance protects your investment in case the worst should happen. Rates vary based on the value of your home, but expect to pay an estimated $120 a month.
Property taxes. Taxes can be as high as 2% or more of your home’s value annually.
Maintenance. Regular maintenance includes yard work and supplies, repairs, upkeep and more. Experts suggest setting aside 1% – 4% of your home’s value each year.
Monthly utilities. A good budget is about $300 per month for home utilities, including water, power, internet, and garbage collection.

Other expenses

You’ll also want to create a budget for closing and moving expenses. These aren’t monthly costs, but you’ll need to plan for them as part of your home purchase:

Pre-purchase home inspection. A good home inspection typically costs $340 out of pocket.
Appraisal. It usually costs between $300 and $600 for an appraisal, which is required for most mortgage financing.
Down payment. Typically between 3% and 20% of your home’s purchase price, you’ll need to save up your down payment ahead of your mortgage financing.
Paperwork fees. Budget about $75 for paperwork fees, including credit reporting and couriering for documents.

How can I budget for my mortgage payment?

I help people understand how to build wealth quickly and share that my wife and I reached financial independence in our early 40s. So you may expect to hear we were extremely diligent budgeters.

Wrong! We never made a budget.

We simply focused on buying less house and car than we “could afford.” Housing and cars are the two biggest expenses in most households. Unfortunately, most people make decisions reflexively on how much home or car to buy. Usually, these decisions are based on how much a lender will loan them.

Carefully decide what you actually want to spend on your housing (and cars). We made a conscious decision on how much to spend based only on what we could comfortably afford on one of our incomes, with the idea that we may want to have a stay-at-home parent or we could potentially be forced into that position (due to illness, layoff, etc.). We didn’t want to be locked into large obligations that we couldn’t afford.

If you get these big decisions with housing and cars correct, this will leave a lot of room in your budget (and a lot of mental space because you don’t have to worry about small budgeting decisions) for things that truly bring you value. On the other hand, if you lock yourself into high obligatory monthly expenses with these decisions, budgeting will occupy more of your mental energy and leave you with less available money to spend on other things that would add value to your life.

-Chris Mamula at Can I Retire Yet?

What’s your best advice for budgeting for a new home?

The general rule of thumb is that homeowners should spend 28% or less of their monthly gross income on their mortgage payment, and this includes the principal, interest, taxes, and insurance. But there are other costs that homeowners—especially first-time homeowners—should factor in before they determine their budget. Moving costs, closing costs, home repairs, and big-ticket furniture purchases are going to add up, and homeowners should expect to spend 2% of the home value on annual maintenance. Include these expenses in your bottom line before deciding on your budget to avoid getting in over your head.

– Hometap

How Can I Create A Budget For Utilities?

As a new homeowner, you will be surprised at all the costs you will have to face, and one of the big ones is utilities. Along with your mortgage, property tax, insurance, etc… You will have to pay for utilities each month. Yes, not fun, but it’s necessary.

So how do you go about budgeting for these utility costs? Well, first, you have to know how much each utility will cost each month.

One way to find out how much you will have to pay for utilities each month is to contact the realtor that sold you the home. They might have a history of utility bills from the previous owner that they can provide to you. If not, then you can find a way to contact the previous owners of your home and ask them for a rough estimate of how much they used to pay each month for utilities.

While this will not be 100% accurate for you since the size of your family might differ and you will most likely have different consumption habits, it will give you a good idea of around how much you will have to pay for utilities in your new home.

Other than the tips above, you can do some research online to see if there is any information on the average utility costs for the area you reside in. Another way is to contact the provider for each utility and ask them the average cost for your area.

With these tips, you will get a rough estimate of the average cost of utilities for your home so you can budget appropriately.

It is recommended to budget a little over your estimate for the first few months until you get a clear picture of your monthly costs. You can always allocate the leftover money towards other bills or towards your savings account.

Also, remember to adjust your budget depending on the season. Electricity bills are usually higher in the summer due to cooling, and gas bills are usually higher in the winter due to heating (if you have a gas boiler).

-Michael Outar at Savebly

How much should I budget for home maintenance?

Whatever can go wrong will go wrong when it comes to home maintenance. This is why I recommend homebuyers set aside about 10% of the value of the house price as a financial buffer. It is part of my 30/30/3 home-buying rule that all first-time homebuyers and veteran homebuyers should follow.

For example, if the house costs $500,000, set aside $50,000 in cash or semi-liquid investments like stocks earmarked for home maintenance issues. This way, whenever something comes up, there’s less stress because you have the maintenance costs likely covered. If you don’t have 10% of the value of the house in cash or semi-liquid investments, then it’s up to you to build toward this home maintenance fund.

Finally, make sure your home insurance has enough replacement coverage and an affordable deductible in case something were to happen. Homeowners who suffer the greatest overextend themselves and don’t have the appropriate amount of home insurance.

-Sam Dogen at Financial Samurai

To combine or not to combine – finances and partnership

It’s always smart to have financial plans and goals in place when buying a house. When you’re embarking on that adventure with a partner, it’s particularly important to clearly plan and communicate your goals. Combining finances looks different for every couple; join financial forces only if it works for both of you.

When you’re having a conversation about joining finances, there are different types of expenses to cover. Fixed expenses and variable expenses should both be realistically considered when you’re combining finances so you can both feel confident about shared funds being fairly allocated and spent.

Finances can be a difficult topic, and everyone has their own way of managing their income. Remember to take the time to listen, stay judgment-free, and be honest.

What are variable expenses in a budget?

When you’re moving into a new home, there are certain variable expenses to account for in your budget such as water and electricity expenses. These expenses can vary from month to month and can be difficult to predict. One way to help manage these expenses is to implement energy-saving habits, such as turning off lights and appliances when not in use, using energy-efficient light bulbs, and washing clothes in cold water. By being conscious of your energy usage, you can potentially save money on your monthly bills and reduce your environmental impact.

Additionally, consider purchasing a programmable thermostat to help regulate the temperature in your home and save on heating and cooling costs. As you settle into your new home, keep track of your energy expenses and adjust your habits accordingly. With some effort and attention, you can save money and live comfortably in your new abode.

– Brian Meiggs, Smarts

What are fixed expenses in a budget?

Fixed expenses are set expenses that stay the same from period to period. Many fixed expenses will need to be paid every month. Some fixed expenses are paid biweekly (like some mortgages), or quarterly (such as some utility bills).

When you are building a budget, it is easiest to start with fixed expenses because you know what those are.

When you have recently purchased your first home (congratulations!), here are some fixed expenses to add to your budget:

Mortgage
Property taxes
Home insurance
Heating (gas/electric)
Water/utilities
Phone bills
Car payments

Variable expenses are exactly that – they can change from month to month, period to period. You often don’t know the amount they will be until you incur the expense. This is different from fixed expenses like a mortgage where you know what the payment is, and it is the same each month.

Utilities can be either fixed or variable depending on your municipality and plan. Some cities allow a fixed monthly payment with actual usage/payment accounted for at the end of the year.

Variable expenses should still be budgeted for, but they won’t be the same “fixed” amount from month to month. Variable expenses are things like groceries, gas, clothing, gifts, trips, repairs, etc.

-Suchot Sunday at The Curious Frugal

How can I create an emergency fund?

When purchasing your first home, it’s vital to have an emergency fund to cover any unexpected costs that pop up. While the ultimate goal is to build six months’ worth of expenses, an easy plan to start with is $1,000.

There are multiple ways to quickly build your beginner emergency fund. Start by having a small amount of your paycheck (10% if possible) automatically deposited into your emergency fund. By using auto deposit, you won’t find yourself making excuses to spend it before setting it aside.

Next, save any unexpected windfalls. Whether it’s some birthday cash from Aunt Edna, a bonus from work, or a sweet tax refund – make it a point to sock it away to build your emergency fund. You’ll be surprised at how often even the littlest amounts pop up and can quickly build your savings.

A final option is to pick up a side gig and stash that cash into your fund. Side hustles can be a great way to pick up some extra income without a commitment. Build upon your current skillset at work and do some freelance, or try something completely new. Maybe you have a hobby that you can make profitable, or there’s a need in your neighborhood that you can fill. Side hustles can be as fun or as committed as you like – it’s all about what you enjoy doing and helps you to make additional income.

Now that you’ve started to build your emergency fund, always keep it in a separate account – it’s too easy to spend it accidentally (ask me how I know!). Keeping these funds in another account means it’s easier to see when you’ve spent a bit and can build it back up. It can also help you pause and consider if the purchase is truly an emergency or if the purchase is a want. Often having that additional barrier of another step will help you to give pause before needlessly spending.

-Tana Williams at Debt Free Forties

What’s the best way to combine finances after marriage?

Before combining finances, schedule a family financial meeting where you can review your net worth, cash flow, major upcoming expenses, and financial goals.

In our daily lives, it can be challenging to talk about money. Maybe money makes you anxious or scared. Perhaps you don’t feel confident with money management or consistently overspend. Maybe you are great with money but worry about investing or sharing your income with someone you love.

Recognize that you or your partner may have emotional triggers that make financial discussions uncomfortable.

A family money meeting allows you to talk about money in a safe place. In this meeting, you’ll discuss income and expenses while working to understand your partner’s money blocks, spending patterns, and concerns.

Before the meeting begins, grab a beverage and find a comfortable place to talk. Bring your pay stub, bank records, and credit card statements. Then ask your partner to do the same. Create a space where you can both speak honestly and openly.

After reviewing your income, expenses, and debt, it’s time to document your goals. Create a list of small, medium, and big dreams you and your partner share.

Do you need to buy a new car, pay for an upcoming trip or search for your first home? Discuss your goals so that you can set aside money for the things matter. You get on the same financial page by sharing your dreams.

After talking with your partner, you’ll better understand their financial fears, strengths, and insecurities. Do you have a partner who feels confident sharing bank accounts, or did they grow up in a home where their mother or father abused their financial powers?

Would your partner feel better using a combined bank account for household expenses or creating a joint account for everything you need?

Before you merge accounts or decide to keep them separate, you’ll need to understand your partner’s wants and needs.

What you choose doesn’t matter if you keep an open-door policy for future financial discussions and consistently meet to ensure you share the same money goals.

-Jewels at One Frugal Girl

How can my partner and I manage our money?

I always recommend my community members learn how to budget. Her First $100K’s budgeting tool is called the Badass Budget. It helps people figure out how much money they have to work with, where it’s going, and the changes they can make to maximize their earnings by saving, investing, and spending in line with their values.

When it comes to being in a romantic relationship, it’s important to make sure your financial goals are aligned. Buying a house is a huge decision, so you’ll want to sit down with your partner and be transparent about your salary, debt, and spending habits. It’s ok to admit that you’ve had some financial missteps (we all have!), but be honest with your partner about how you plan to course correct so you two can achieve your goals.

I also always encourage people to never fully combine finances. Yours, mine, and ours is key. It’s important to always keep some form of autonomy, especially as women. Women on average already make less than men due to the gender wage gap. We’re also more likely to be victims of abuse, including financial abuse. One way to protect yourself is to still have some money of your own.

So, my main advice is to learn how to budget by looking at your income, bills, debt, and savings goals. Combine finances responsibly when you’re ready and continue to have money that is all yours. This means each person will continue to have independence while enjoying the comfort of working to achieve financial goals with their partner.

-Tori Dunlap, writer of Financial Feminist, at Her First $100K

How can I set financial goals with my partner?

Setting financial goals with your partner can be difficult if you have two different thought processes on money or if you come from different backgrounds.

Are you a nerd for a free spirit?

Understanding who in the relationship is the nerd and who is the free spirit is so important to understanding how the other person views money. I am 110% the nerd in our relationship.

Both the nerd and the free spirit have very important roles in the relationship. The nerd helps the family stay on budget and in check and the free spirit helps to ensure that you don’t get budget burnout and can still ENJOY your money.

Random Big Purchases.

Set a number that you both are comfortable with for random purchases, whether that’s $25, $50, or $200. For us, it’s $50, so for anything over $50 we have to consult with the other person if it’s a good purchase to make and/or if it’s the right time to buy it. Sometimes I ask my husband if we can buy a $60 kitchen appliance and he says “let’s wait until next month” or “your birthday is in a few weeks, if you don’t get it for your birthday then we can get it”, while he is secretly jumping for joy that I just gave him a great birthday gift idea!!

This is a really great way to always have open communication about your money and budget; it also makes it so that there are no surprises when one of the spouses is going through the bank statement and logging all of the purchases and randomly sees a $150 Amazon purchase that you had no clue about! No one else has been there right?!

Budget meetings.

Budget meetings are vital to staying on the same page with your finances and working towards a common goal. I create a rough draft of the budget, yes a rough draft means that it is NOT finalized (even though it looks perfect and doesn’t need any changes in my head)! Then after dinner when we are full and not hungry we sit down for our budget meeting, I let him look at it and nod at certain things and shake his head at other things, all while I am keeping my mouth shut.

We then take this time to talk about our goals and our dreams. It’s so important to keep them both at the front of your mind to remember why you are sacrificing and eating at home because you are saving for a common goal like buying your first house.

-Kelly Anne Smith of Freedom In A Budget

Budget or lose it

The temptation to avoid looking closely at your spending habits and finances can be powerful, especially if you find yourself often struggling to make ends meet. There’s a good reason every financial expert recommends creating a budget – it works.

For new homeowners, having a written budget helps you to keep yourself accountable, which can be uncomfortable. Once you get past that bottom-falling-out feeling, having a budget goes a long way to helping you achieve financial stability.

From paying bills on time to creating an emergency fund, once you have a budget and are working towards your goals, you’ll find your stress levels around money going down.

What are the 3 easier budgeting systems for beginners?

There are many different budgeting methods, but the key to successful budgeting is sticking to the one that works best for you. It will also depend on your goals, priorities, and personality type. Here are three popular ones for new homeowners:

1. Envelope system, also known as “cash only” system, you would label the envelopes for each spending category with a monthly budget. Here are examples:

– Groceries – $600

– Restaurants – $300

– Home Maintenance – $500

– Car Maintenance – $200

– Fun Money – $300

For new homeowners, you can also temporarily add more specific categories like “New Furniture” and “Appliances” until you’ve fully furnished your home. This method is best for those who don’t want to become addicted to credit cards. Once the cash in the envelope is used up, it’s gone and you can’t spend any more!

2. The 50/30/20 budget, which will allow you to balance your wants vs. savings.

50% goes towards needs and living expenses like food, transportation, health insurance, mortgage, home insurance, property tax, home maintenance, water, utilities, etc.

30% is dedicated towards wants, which are generally entertainment or fun things. That includes home decor, IKEA, housewarming and gatherings, gardening, Netflix, etc.

The remaining 20% goes towards savings including an emergency fund or paying off debt.

As a homeowner and landlord for 8 years, I highly recommend setting aside an emergency fund equivalent to 6 months worth of living expenses for “Unexpected Home Repairs”. You’ll never know when you need to replace that expensive roof or furnace!

3. Lastly, a personal favorite of mine is the reverse budget because it’s minimalistic and feels quite passive with the least amount of work. This budgeting system is also known as “pay yourself first” because it focuses on savings before expenses.

You would set a realistic monthly budget of your desired savings (e.g. 15% to as high as 50% depending on your earnings) and automate those savings by deducting a percentage of your paycheck, which goes into a savings and/or investment account.

After “paying yourself first”, you would then pay all living expenses like your mortgage, property taxes, water bill, utilities, home insurance, food, etc. Lastly, any remaining cash can go towards entertainment or “fun spending”.

-Ling Thich at Finsavvy Panda

How can I create a budget if I have debts?

Because you have debt, you absolutely must have a budget. It’s by far the best way to reach your financial goals. Good money management is telling your money where to go instead of watching it disappear. Allocate your monthly payment to the needs first, then the debts, and finally the wants. For example, paying rent or mortgage first, heat and electricity, transportation needs, and food.

After those four walls and necessities are paid off, start tackling those debts. It depends on your personal values system whether or not you’d rather budget your money for a $600 car payment or debt freedom. It will also depend on how intensely you want to attack your finances and how badly you want to make your money dreams come true.

If you’re still in debt, creating a budget can be challenging. But if you want long-term financial stability, it’s well worth the effort. The first step is to track your income and expenses using an app or trusted traditional pen and paper. Know what you have coming in and where you’re spending your money.

Creating a budget requires comparing what you have coming into what you have going out each month. Once you have a clear picture of your income and expenses, start making changes and setting goals. Cut back on non-essential spending, increase the amount that goes to debt payments, or increase your savings.

Giving every dollar a name, whether it’s a buffer in your checking account or directly to savings for the new couch, is essential in setting up a solid budget. There should be nothing left at the end of the budget. Every dollar needs to be assigned to a category.

Once you’re debt-free, keep your budget in place and be sure to adjust it as needed. To stay on track with your finances, you must set realistic goals and hold yourself accountable monthly. Budgeting is a key component of good money management, so if you’re serious about reaching your financial goals, don’t wait to get started.

When it comes to budgeting and money management, flexibility is key. Creating a budget that works for your specific situation and financial goals is important. Once debt-free, continue to tweak your budget as needed and make it a key part of your financial planning. With strong money management skills and good budgeting habits, you can achieve long-term financial stability and reach your money goals.

Creating a budget is one of the best ways to take control of your finances and reach your money goals. It can be challenging if you have debt, but it’s well worth the effort. With strong money management skills and good budgeting habits, you can achieve long-term financial stability and reach all of your money goals.

-Sara Conklin at Frozen Pennies

How can I create a retirement budget?

The most important thing about retirement is to start thinking about it and acting on it now! The first step is figuring out how much you will need in your retirement years to meet your needs and wants. The number of years you have before retirement for saving and the amount you can contribute will be essential factors in determining what your retirement lifestyle can look like.

Once you arrive at retirement, your lifestyle will change, probably significantly. This change in your lifestyle will affect your budget. Hopefully, by then, you’ll have your house paid off (or mostly paid off). Your income from your job will disappear, and you’ll begin receiving a pension (if you’re lucky enough to have one) and some form of old age security from the government. You’ll also start using those retirement savings you’ve been squirreling away all those years. You may have other goals in retirement, such as travel, that you need to plan for.

In your current budget, plan to save a little money every month and put it into a tax-sheltered Retirement Savings Plan.

Work with a financial professional to determine the right amount and a suitable investment. Because of inflation and the associated future value of money, it may feel like a ridiculously high amount of money you’ll need for retirement. Fortunately, starting as early as possible will help your money grow the fastest by taking advantage of compound interest inside a good investment.

Again, a financial professional will help you consider your wants and needs and set a savings plan to fulfill that.

As a first-time home buyer, you will quickly become accustomed to your mortgage payments. They will typically be for a fixed amount at the same time every other week or every month and will become a regular part of your financial life. In the same way, your retirement savings should be set based on your retirement wants and needs so that when retirement time arrives, you have sufficient for your needs. Your retirement savings will also become a regular part of your current financial life.

-Eric Poulin at CalendarBudget

How do I create a grocery budget?

When my husband and I first set up our monthly groceries budget, we realized that we wanted a budget that fit our personalities. We are both creative individuals so we use colored pencils, markers, and templates to help make the budgeting process each month fun. Making the budgeting process fun has helped us look forward to setting and creating our monthly groceries budget each month.

–Latasha Peterson at Arts and Budgets

A little goes a long way – saving money when you own a home

You’ve probably said something like, “I don’t need a budget – I don’t have any money!” That couldn’t be further from the truth. Even if you’re living paycheck to paycheck, as many are, writing down your expenses and tracking your spending habits helps you figure out where to scale back so you can save a small amount each month. Even if it’s just a tiny bit, all savings count.

Why is removing distractions essential for sticking to a minimal budget?

Removing distractions is critical to maintaining a minimalist budget as they have the potential to cause overspending and steer focus away from what truly matters. Distractions can come in different shapes and sizes, like email promotions for deals, shopping apps, or many credit cards. To stay on track with a minimal budget, it is recommended to unsubscribe from promotional emails, delete shopping apps, reduce the number of credit cards, and adopt a budgeting strategy that can be monitored daily. It’s also important to make financial goals a priority and review bank statements regularly to guarantee consistent adherence to the budget. The elimination of distractions and regular monitoring of spending habits can ensure a successful and stress-free minimalist budgeting experience.

–Minimalism

How can I save money on my groceries?

The best way to save on groceries is to shop at the right place. I recently wrote about how I save money at Aldi’s in response to another writer’s article about how she saves money shopping at warehouse stores. Not every region has an Aldi’s, but if you do, they are famous for their low prices on their generic brand groceries. The quality of everything is as good as the name brand, in my opinion.

The other writer found that warehouse stores were a better way for her to save due to her large family. She also saved grocery shopping time by stocking up a couple of times a month. Saving time by shopping less often can be valuable.

The best way to save money is to use a combination of stores. It’s almost impossible for one store to have every product at the lowest price. Typically the most successful plan is to mix and match two or three of the best stores in your area.

As a new homeowner, scout your town for the cheapest grocery options that fit your life. Investing a little time in this research will pay off years down the line.

-Brian at Lazy Man and Money

How can I save money on my monthly bills?

It is an eternal quest for almost all of us to own a home, but this can be quite challenging when you are a newbie. To overcome these complexions, I followed this 5 fold principle in my journey:

1. Life After EMI: A pre-approved loan is the most viable choice to start with, but it gets more dangerous when you know the taste of having more. Even if you have several options for additional loans, never consider every option. Eventually, multiple EMI payments may lead to insolvency and push you into a debt trap for life.

2. Practicality > Self-Urge: Understanding the practicality of thy caliber is more significant than the urge to own a luxury home. Be clear and define luxury as you see fit, and never be coldly irrational when buying a new house based on social comparison.

3. Consciousness of Time: A sustained effort is needed to stay on top of timely payments and strategic decisions. Choose automatic payments to avoid adding additional interest rates to your existing rate. Time is always money, so use it wisely before making the decision to buy a dream house with proper documentation and an insurance plan.

4. The 30/29 Percent Rule: Keep an eye on your finances and make sure that at least 30% of your downpayment is backed by solid financial decisions to avoid further risks. Moreover, never exceed your total EMI repayment limit of 29% of your monthly income. This will enable you not to miss out on any chance to boost your morale and credit score.

5. Edging Money Management: Money Management isn’t necessarily about fixing monetary terms, but it could also be about finding more sources of income. Prioritize your debts and pay them off as soon as possible. Your ultimate goal is not just to become wealthy but to stay financially secure by combining frugality and delusion.

-Siva Mahesh at Dreamshala

Budgeting for new homeowners isn’t just an exercise that you’re supposed to do – it’s something that can have tangible effects on your daily life. So, fire up that spreadsheet or budget app, and you’ll be on your way to a more organized, stable financial life.