Thursday, July 28, 2022 / by Brian Armstrong
Buying a home is typically one of the most valuable asset purchases we make in the US. Budgeting for a new home can be challenging but learning how to manage your spending habits will help pave the path towards homeownership! As you get started, it is important to think about your goals and the personal habits you want to keep. Budgeting for a home is often a balance of tradeoffs, and only you can determine your ideal situation. In this article, we will dive into the best steps to take if you are looking to budget for a home purchase! Please keep in mind we are not financial advisors, and you should always speak to a lawyer or financial advisor prior to making a home purchase.
Build A Monthly Budget
One of the first steps of budgeting for a new home is building out a monthly budget. This will help you stay on track with your goals and allow you to see how all of your dollars add up each month. To get started, take a close look at your most recent financials to understand your current inflows and outflows. To do so, gather your incomes, loans, bills, card statements, and any other financial documents for the last 3-6 months. Once your finances are organized, take your total net income minus your expenses to get your potential savings amount. If you are not very confident in what you can currently save, it may be time to re-evaluate some of your spending habits.
Your Wants Versus Your Needs
Every home buyer has different goals about where they want to live, what type of home they want to live in, and a slew of other details that will make a house a home! As you get deeper into your budgeting, you will need to think about what you are willing to give up to buy the home you have been dreaming of. Maybe you are used to eating out five out of the seven nights per week; is that negotiable for you? If you typically go on multiple vacations a year, would it be possible to cut back? These are the type of questions you will need to start asking yourself to identify ways to grow your savings. Finding answers to these questions can be as easy as 1,2,3!
- Category 1 – These are the must-haves, the essentials you need to live and be comfortable.
- Category 2 – This category is for the expenditures that you enjoy splurging on but are flexible about.
- Category 3 – The last category is for the don't-needs and can be cut from your monthly budget creating more savings!
Plan For the Unexpected
As you start to understand what type of home you can afford based on your monthly savings, there are other expenses you should be aware of. Property taxes are often forgotten, especially with new homeowners so make sure to check the county you want to live in to see what the current tax rates are. In addition to property taxes, you also must also think about home maintenance. The general rule of thumb is to set aside 1 percent of the value of your home, to help cover annual maintenance expenses. You never know when something will come up, and it’s always important to be prepared for emergencies!
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