How to Build a Housing Budget with Confidence

Estimated reading time: 2.5 minutes

When it comes to your finances and housing costs, knowing how to budget properly can help you avoid stress and purchase a home that meets your needs. But if you’ve never owned a house before, how do you know where to begin?

Why is a Housing Budget Important?

Most people have fixed and variable costs each month. Fixed costs are reoccurring expenses that change very little month to month, such as your rent, car payments, or subscriptions. Variable costs, like your groceries or credit card payments, change each month. Experts agree that cutting out unnecessary variable costs is one way to reduce spending, such as reducing how often you get food delivered or pick up coffee before heading into the office.

Homeownership has initial and ongoing costs. Depending on your situation, your initial fees may include appliances, upfront mortgage or closing costs, and moving costs. Your monthly mortgage payments may be made of the principal and interest of the loan, your property taxes, homeowners insurance, private mortgage insurance, and homeowner association fees. Regular maintenance, such as appliance upkeep, gutter cleaning, and lawn care should also be factored into your ongoing expenses.

What Affects a Person’s Housing Affordability?

Your income and spending habits are not the only things that affect your housing affordability. Your credit, loan’s interest rate, and the home you choose can all influence your budget.

Your Credit

In general, the higher your credit score, the more options are available to you for a mortgage. Your lender will closely examine your credit history and score during the underwriting and approval process. When you have a higher credit score, your lender trusts that you can handle repaying your mortgage payments.

Mortgage Interest Rates

Your interest rate is the price you pay to borrow money and is charged on top of your loan’s principal. Using a mortgage calculator can help you visualize how your purchasing power will be affected by your interest rate and term.

Property Size and Condition

While you may be able to afford a home’s listing price and upfront mortgage costs, ongoing housing costs are also important for your budget. A large home isn’t necessarily the best option for every buyer, especially when you consider ongoing maintenance, utilities, and upkeep. When you’re house hunting, be sure to ask about the age of appliances and systems to ensure you’re not faced with costs you weren’t prepared for.

Here for Your Home Financing Needs

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