SETTING A REALISTIC MONTHLY BUDGET FOR HOME OWNERSHIP

Every buyer’s situation is unique.  Prior to becoming a Realtor®, I spent over 10 years as a loan officer working almost exclusively with first-time homebuyers.  In almost every case, proper planning ensured they had a pleasant experience owning a home.  Many who failed to plan ended up losing their homes or became financially strapped each month, unable to get ahead.

• CASH RESERVES – I strongly recommend every homebuyer have at least 12 months of cash in reserves once money for down payment and closing costs are paid.  For example, if you’re buying a home with a monthly payment of $1,000, it’s a great idea to have at least $12,000 in cash in the bank after deducting for the money you’ll spend on down payment and closing costs.  The reason for this is simple:  Home ownership can often lead to large, unexpected expenses for maintenance and repair.  While a home warranty can certainly protect a home owner from many surprise maintenance and repair costs of owning a home, they do not cover everything.   Foundation repair, the cost of insurance deductibles for major losses and other household repairs not covered by home warranties can potentially add up to thousands of dollars.
• MONTHLY PAYMENT – Decide what you can reasonably afford to spend per month for a house payment and make sure this amount includes the full PITI (principal, interest, taxes and insurance, plus mortgage insurance).  Be careful when using internet mortgage calculators that do not include taxes and insurance.  Most mortgage loans, such as FHA, VA, USDA and Conventional loans will require homebuyers to pay the additional costs of taxes and insurance as part of their monthly payment.  Conventional buyers who put down 20% or more may be allowed to pay their own taxes and insurance.
• LOCATION – Determine what, if any, additional costs you may incur by moving to a different part of town.  For example, if you are moving to a city that will require you to use a toll road to get to work each day, don’t forget to factor the cost of the tolls, plus additional fuel, into your monthly budget.
• ADDITIONAL COSTS – Utilities can be very expensive.  If you are moving into a larger home than you live now, it’s likely that you may incur higher monthly expenses for items like electricity and gas.  Additionally, make sure to factor in any costs that may be currently paid by your landlord if you rent (such as water, trash, etc.)
• MAINTENANCE COSTS – If you’re a first-time homebuyer, don’t forget to include a monthly cost of maintaining your home.  The cost of maintaining a yard and swimming pool can be over $100 per month in some cases.

Here’s a sample monthly budget I created. You may download a copy of this budget in Excel format, which is editable and also auto-calculates, by clicking HERE.

** NOTE – The figures used in this sample budget are for demonstration purposes only and are not necessarily meant to represent the true costs.  Do your own research and set your own realistic monthly estimates for these costs!

 

SAMPLE MONTHLY BUDGET:
Income (after taxes):
	Monthly Income From Work	$5,000
	Additional Monthly Income	$500
TOTAL MONTHLY INCOME:		$5,500
Home Costs:
	Monthly Mortgage Payment	$1,000
	Home Owner’s Association Dues	$100
Utilities:
	Electric	$250
	Gas	$150
	Water/Sewer/Trash	$100
	Cable TV	$75
	Internet	$50
	Home Telephone	$40
	Cell Phone	$100
	Lawn Maintenance	$50
	Pool Maintenance	$75
	Other Costs	$100
Insurance:
	Life Insurance	$50
	Health Insurance	$100
	Auto Insurance	$75
	Other Insurance	$50
Other Expenses
	All credit card payments	$150
	Student Loan Payments	$200
	Car Payments	$575
	Other	$100
Cost of Living Expenses:
	Gas	$200
	Groceries / Food	$400
	Car Maintenance	$150
	Entertainment	$200
	Clothing	$150
Savings
	Monthly Savings/Investment	$500
	Summer Vacation Fund	$500
TOTAL MONTHLY EXPENSES:		$5,490
BUDGET SURPLUS (DEFICIT)		$10