How to Determine Your Monthly Housing Budget

How much does it cost each month to own a home? There are several must-haves that will contribute to this overall expense, and you’ll want to consider each one prior to creating your housing budget.  

You’ll want to establish this budget before beginning your home search. Determining a reasonable monthly housing budget will give you a better understanding of what to expect after purchasing a home and can prepare you to live within your means.

But how do you go about calculating housing expenses when you’ve never owned a home before? If you’re preparing for first-time homeownership, here’s what you should consider.

Monthly Housing Bills

The bulk of your monthly housing bills will likely include the following:

• Mortgage: Your mortgage will account for the bulk of your monthly debts. Your payments will depend on what type of mortgage you choose, your down payment, the mortgage term, and your loan’s interest rate, among other factors. Use our mortgage calculator to determine your estimated monthly payments if you don’t already know them.
• Homeowners Insurance: Like other types of insurance, your premium will depend on many factors, including your home’s age, your home’s size, your credit history, and any items that require extra liability such as a trampoline or swimming pool. If you already have other insurance, such as an auto or personal articles policy, contact your agent to explore opportunities for multi-line discounts. You may also qualify for discounts on insurance through employers or affiliation groups, such as alumni associations, that you belong to.
• Private Mortgage Insurance: Private mortgage insurance (PMI) is a type of insurance. You may be required to get PMI depending on the percentage of your home’s value you contribute as a down payment. You’ll typically add this insurance as an extra premium on your monthly mortgage payment. However, you won’t have to pay PMI on a conventional loan if you make at least a 20% down payment.
• Utilities: While your rent may have once covered many of your utilities, you’ll now need to pay each of these bills separately. From electricity to trash, to water and sewer, homeownership comes with a variety of associated costs you’ll want to add in when calculating your monthly housing budget.

Add up the projected expenses above to determine how much you’ll need to spend on a monthly basis after moving into your new home. Also take into consideration other regular or seasonal expenses you’ll need to cover as a homeowner. For example, you’ll likely have yard maintenance costs and could be required to pay homeowners association fees year-round.

Percentage of Income

Many lenders use the front-end ratio, among other factors, when determining your eligibility for a mortgage. The front-end ratio is the ratio of your monthly mortgage payment to your monthly gross (pre-tax) income. Though it may vary by lender and personal circumstances, lenders generally want to see a front-end ratio of 28% or less. In an ideal situation, your mortgage would account for less of your income than this, giving you more room to handle other debts. View a sample household budget here.

This standard isn’t set in stone, so you could still be approved for your mortgage even if the loan would account for more of your monthly income. Just keep your financial situation and all other expenses (groceries, car payment, college loan payment, etc.) in mind when considering whether these numbers work for you.

How to Stick to Your Budget

Once you’ve determined how much you’ll need to cover your monthly housing expenses, make a plan to help you stick to it. Keep these tips below in mind.

• Pay housing expenses automatically using bill payer service to keep you on track and ensure you’re making your payments on time. If you’re not comfortable with automatic payments, set up reminders to allow enough time to make payments before the debts are due.
• Remember to put aside money each month into a savings share to use for expenses in case of an emergency.
• If you’re sharing expenses with a partner, designate a secure shared tool to track bills and hold each other accountable for paying them on time. Set clear expectations for who will actually submit the payment each month.
• Read and respond to communication from your lender, insurer, and taxing authorities promptly. Doing so could save you money – for instance, some taxing authorities may give you a small discount on your property taxes if you pay them early.

Applying for a Mortgage

Is your estimated budget finalized? Then you’re ready for the next step — researching mortgage types. You’ll find a wide variety of mortgages available to meet your needs.

We offer free resources to help you understand your options. Our website offers information on an array of financing options, and our mortgage calculators allow you to estimate your monthly payment. You can also talk with our mortgage consultants who can help you find the right solution for you.

If you’re ready to apply for a loan, we’re here to help. Ready to apply? Get started now or contact us to learn more about the products we offer.