Buying a home is one of life’s most significant milestones. Whether you are buying your first home or have been through this process before, there are a few budgeting tips that we want to address. These tips can help you prevent surprises and stay on track so you can achieve your overall financial goals in the future. In this article, we’ll review a few of the most important budgeting tips for buyers to consider when budgeting for a home purchase.
How to Calculate Your Down Payment and Monthly Mortgage Payments
First, it is important to understand that the size of your down payment will significantly impact the cost of your monthly mortgage payments. The larger the down payment, the smaller the mortgage and the lower your monthly payments will be. Additionally, by making a 20% down payment, you may be able to remove private mortgage insurance (PMI) from your monthly costs.
Some underwriting requirements have minimum down payment requirements for loan qualification. It is important to identify these factors in advance so you know how much you need to save before purchasing a home, which will allow you to create a more specific savings plan. By knowing how much you need for the down payment, you can calculate how much you need to save each month. You can also calculate how long it will take to save your desired amount.
Factoring in Cost of Living and Property Taxes
Next, understanding the cost of living in your desired location is crucial for projecting your budget after the home purchase. The average cost of living varies significantly on a national and local level, affecting both the cost of homes and consumer goods, such as groceries and gasoline.
Property and potential city income taxes may also differ between similar properties in different locations. Other things, such as the distance of the commute to work, may increase the monthly cost of specific expenses. Of course, the interest rate associated with the mortgage loan will greatly impact the monthly payments.
Researching these factors and including them in your budget projections is important to ensure you can still achieve your overall financial goals. For more information about general budgeting, check out our article on the basics of budgeting and financial planning mistakes to avoid.
Budgeting for Home Maintenance and Renovations
Lastly, there will always be home projects or renovations that are considered while you are living in the property. Sometimes, these projects are necessary and must be completed, while others are optional and are up to your preference. You can gain insight into future projects during the home inspection when you review the condition of various home specifics, such as the life of the roof or furnace.
This time could also be used to imagine what future renovations you may voluntarily decide to pursue, such as patio or kitchen remodeling. The length of time you plan on living in the home may impact how many of these options projects you decide to complete. For example, if you are only going to live there for 3-5 years, then you may limit the number of projects you undertake. If you plan on living there for 20+ years, then you will likely be more willing to complete those low-priority projects.
Budgeting for a Home Purchase Conclusion
- Budgeting for a home purchase is a vital part of the process. By following these tips, you can help ensure you are financially prepared for this major milestone.
- The larger the down payment, the smaller the mortgage and the lower your monthly payments will be.
- Expenses may vary from location to location. It is important to research how these variables might fluctuate based on your potential homes.
- How long you plan on living in the home may dictate which renovation projects you decide to pursue.
Speak With a Trusted Advisor
If you have any questions about budgeting for a home purchase, your investment portfolio, taxes, retirement planning, our 401(k)-recommendation service, or anything else in general, please call our office at (586) 226-2100. Please also reach out if you have had any changes to your income, job, family, health insurance, risk tolerance, or overall financial situation.
Feel free to forward this commentary to a friend, family member, or co-worker. We hope you learned something today. If you have any feedback or suggestions, we would love to hear them.
Zachary A. Bachner, CFP®
with contributions by Robert L. Wink, Kenneth R. Wink, and James D. Wink
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