According to the U.S. Department of Housing and Urban Development (HUD), affordable housing means that you should be paying no more than 30% of your gross income for housing costs, including mortgage principle and interest, property taxes, home insurance premiums, and utilities. In reality, home ownership costs much more when HOA fees, maintenance, and repairs are included.
Budgeting can feel like a daunting task, but it’s also an exciting opportunity to take control of your financial future! The first thing you should do is get that pre-qualification done. This crucial step will give you a ballpark figure of the amount you can afford for your dream home. Once you're approved, it's time to dive into the details!
Sit down and be really honest about your budget—yes, I know it’s hard! But trust me, writing everything down is key. Don’t shy away from including those trips to Starbucks or those fabulous shoes that catch your eye. After all, once you buy a house, you'll still want to enjoy those little luxuries! It’s all about balance and ensuring that you've allocated enough for the things you love while also being responsible with your finances.
And remember, this budget is just for you—no one else needs to see it! It’s simply a tool to help you understand what you're comfortable spending and where adjustments might need to be made.
Here are three things to think about in your budget.
Cost of Commuting: Figure out if there is a difference in mileage from the neighborhood of choice to work and calculate the amount of gas that it would take. I know in my case I underestimated the amount of gas I would need to commute to my work from my new home. While it seems like a small thing, it is about $100 a month and that’s a big chunk of change. If you are commuting by public transit, check to see how much that bus, train or subway ticket will now cost each day.
Utilities Cost: I moved from my apartment with very low utilities to a house. My bill increased 5 times from what it had been in my apartment. Luckily, I had budgeted for that and you can too. As soon as you find a home you can call the electric company or gas company. Ask them what the past usage for the home has been. While you may use more or less electricity/gas it will give an idea of what to budget for.
Rainy Day Fund: I know everyone says you should have one of these funds and there is a reason. It’s true. Yes you just bought a house and nothing should go wrong. In reality things will go wrong and you need to have the means to fix it. For us it was the roof. The roof itself is in great shape, as the inspection pointed out. However, we found out that our shingles were recalled after we moved in and they don’t make them anymore. Well, when the first hurricane hit, we lost a lot of
Plan for rising costs. Property taxes are based on sales prices, so you’ll only pay the seller’s rate until the next assessment which will be much higher next year. Home insurance, utilities, etc. will rise in cost most years.
Plan for the long-term. It takes time to build equity in real estate. When you buy a home, plan to live there for at least seven years, then rent it out.
