What Is a Good Budget for a House?
Written by
Melanie Grafil, AI Editor
Edited by
Melanie Grafil
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A good budget for a house is one that allows you to comfortably afford monthly mortgage payments, maintain or improve your current lifestyle and continue saving for other goals. It’s about striking a balance between your housing needs and your overall financial well-being.
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The Role of Income and Expenses in Budgeting
When it comes to buying a house, the term “good budget” isn’t one-size-fits-all. It’s a figure that should align with your personal financial situation, lifestyle and future goals.
It’s a major milestone that requires careful financial planning. It’s important to assess your monthly income and expenses, determine a realistic down payment and understand the ongoing costs associated with homeownership. By considering factors like mortgage terms, closing fees and future financial goals, you can create a budget that ensures a comfortable purchase and sustainable living.
How To Plan Your Homebuying Budget: 7 Factors To Consider
Here are some things to consider when you’re creating a house budget.
1. Monthly Income and Expenses
Take into account how much money you make every month. Count everything – your main job, side jobs and any extra money you bring in. Then, write down all your expenses, such as bills, loans, and of course, what you spend on entertainment and things you enjoy.
Remember to include costs that can vary from month to month; for example, a car repair, or higher gas or electric bills during winter or summer. These can affect how much you can spend on a house. By having a clear picture of your financial situation, you can determine an affordable monthly mortgage payment, ensuring your new home is a joy, not a financial burden.
2. Down Payment Budget
Deciding on a down payment is a key part of your house-buying strategy. A larger down payment often means better mortgage terms and less interest paid over time.
If you can swing it, aim for at least a 20% down payment, which can help avoid paying for private mortgage insurance. However, it’s important to balance this with maintaining a healthy savings buffer. This ensures you’re financially prepared not just for the purchase, but also for any unexpected expenses that might arise in the future.
3. How Much House Can You Really Afford
Now, figure out how much house you can afford. A good rule is the 28/36 rule – don’t spend more than 28% of your income on housing and keep your total debt less than 36% of what you make. This can help you find a price range that won’t stress your budget.
What Is the 28/36 Rule?
This rule suggests that no more than 28% of your gross monthly income should go towards housing expenses. Also, try to keep all your debts, like your house payment, car loans and credit cards, under 36% of your income. This helps make sure you’re not spending too much on debt.
4. Loan Terms and Interest Rates
Consider the terms of your mortgage loan, including the interest rate, as they can affect your monthly payments and the total cost over the life of the loan. A lower interest rate can save you thousands of dollars. Also, decide whether a fixed-rate or adjustable-rate mortgage is more suitable for your situation and financial plans. Understanding these terms helps ensure you choose a mortgage that aligns with your long-term financial stability.
5. Closing Costs and Other Fees
Don’t forget about closing costs, which are extra fees when you buy a house. These can include things like loan fees and home inspections, usually about 2% to 5% of the loan. Remember to budget for any repairs or updates the house might need right away.
6. Home Maintenance and Other Costs
Owning a home means you’ll have other costs like fixing things, taking care of the yard, replacing appliances and dealing with pests. Set aside some money for these things, so you’re not caught off guard.
This might also include routine maintenance, potential repairs, property taxes and homeowners’ insurance. These costs can vary depending on the property and location but should be included in your overall budget.
A good rule of thumb is to set aside 1-3% of the home’s purchase price annually for maintenance and repairs.
7 Future Financial Goals and Plans
Think about your future financial goals and how a house purchase fits into them. Are you planning for major life changes like starting a family, changing careers or going back to school? Your house budget should be flexible enough to accommodate these. Buying a house shouldn’t keep you from achieving other financial goals, like saving for retirement or your children’s education.
What Does House Poor Mean? How To Avoid It
Being “house poor” means you spend so much on your house that you don’t have much money left for other things. This can happen if you don’t think about all the costs of owning a home. Make sure your budget keeps you comfortable and allows you to enjoy life, not just pay the bills.
Final Take
A good budget for a house is one that lets you live comfortably. You should be able to pay for your house and still have enough for other things you need and enjoy. It’s about finding that middle ground where you can be happy with your home and still go out for dinner, save for a vacation or buy a new phone when you need to.
FAQ
Here are more answers to some frequently asked questions about budgeting for a household.- What is the best budget for a household?
- The best budget for a household is one that covers all your needs--like food, bills, and rent or mortgage--and some wants, while still allowing you to save money. One way to do this is with the 50/30/20 budget. That means spending about 50% on needs like bills and rent, 30% on wants like dining out and saving 20% for the future or emergencies. It’s about balancing your spending and saving to stay comfortable and secure.
- How much house can I afford if I make $36,000 a year?
- If you make $36,000 a year, following the 28/36 rule, you can afford a house where the monthly costs don't exceed about $840. This keeps your housing costs within a safe range of your income. Remember, it's also important to consider your other debts and expenses when deciding on a house price.
- What house can I afford on $70,000 a year?
- Making $70,000 a year, you can afford a house with your monthly housing costs of around $1,750, based on the 28/36 rule. This helps ensure your housing is affordable based on your income.
Editor's note: This article was produced via automated technology and then fine-tuned and verified for accuracy by a member of GOBankingRates' editorial team.
