Home Buying Budget Breakdown

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Qualifying for a mortgage is just one step in your home buying and budgeting journey. Here are some things to expect and plan for when creating your budget.

Upfront Costs

Down Payment: If you’re making a down payment (required for most loan programs), you’ll pay it at closing.

Most down payment requirements start around 3%, but you can put down as much as you want on the home. According to the National Association of Realtors’ 2021 Profile of Home Buyers and Sellers report, the typical down payment for first-time buyers was 7%, while the typical down payment for repeat buyers was 17%.

Closing Costs: All loans have closing costs you normally pay upfront and they usually vary from 3% – 6% of the loan amount depending on your situation. When you get pre-approved for a mortgage, you’ll see how much you need for closing costs, so it’s a good idea to save early since they can add up.

Escrow Account: If you set up an escrow account to pay your real estate taxes and home insurance, you’ll need to fund it with at least two months of the cost upfront.

Prepaid interest: Prepaid interest represents the cost of borrowing money over the time between your closing date and first payment date. You should learn what this cost will be in the documents from your lender before you close.

Moving Expenses: The moving line item of your budget can have quite a range, so you need to figure out what exactly you need to best prepare. Is this a long- or short-distance move? Do you need a moving company, or will you handle packing, loading, and driving a rental truck? Or, do you need something in between? If you want to keep costs down, pack everything yourself, move and unpack as much as you can, and leave only large furniture and boxes for the movers.

Utilities, Cable, and Internet: Every utility company differs. Some require a deposit, others ask for the first month’s bill up front, and some just turn them on and let you pay bills as they are due. In this technology-focused time, you may want to get your internet and/or cable scheduled for closing day.

Once You Get The Keys

Changing the Locks: Even if the previous owners tell you they handed over all keys to the house, it’s recommended you change the locks as soon as you have possession of the home. You can hire a locksmith or keep costs down by installing new locks yourself.

Cleaning: When you move into a home (even a newly constructed one), you should give it a good, deep clean. If it’s in your budget, hire professional cleaners that handle new move-ins. They can usually do it quickly and they’ll pay close attention to the details. If it’s not in your budget to hire pros, buy the necessary products and/or equipment and do the work yourself.

Painting: If you want to repaint the whole home, or parts of it, include a budget for painting supplies and/or professional painters. Since painting is something many people can do themselves, you may just want to set aside money for supplies and do the work yourself. But, if you have room in your budget, professional painters can do the job quickly and efficiently.

Repairs: The home inspection report is your guide for any repairs you should do once you move in (minus what the sellers may have handled before you closed). This budget will probably be a little fluid based on your inspection report’s findings, so prioritize which projects you need/want to do first to spend wisely.

Furniture: If this is your first or tenth home, furniture could take up a large part of your budget. Think about which rooms need furniture first and plan/budget accordingly. Furniture may also be an ongoing cost consideration, so pad yourself a little when you’re building out your budget.

Window Treatments: Window treatments can be also a bit of a range in your budget depending on your needs and style. Focus on the windows you want to be covered for privacy and security first, and then work the remaining windows into your budget as you can.

Appliances: If the seller didn’t leave the appliances in the house or you want new appliances, include the cost in your budget. Typically, sellers leave the stove, oven, microwave, refrigerator/freezer, but not always. Read the fine print in the contract and decide what you might need to buy before you move into the home.

Ongoing Costs

Mortgage: As a new homeowner, you’ll have a monthly mortgage payment that includes the principal and interest, and is for the length of the loan’s term

Home Insurance: Most lenders require you to pay for one year of home insurance upfront by the closing and you’ll need to provide the paid-in-full receipt and proof of insurance. The average homeowner pays $1,765 a year, but home insurance costs vary by where you live, the size of the house, and the type of coverage you choose.

Real Estate or Property Taxes: Real estate or property taxes become your responsibility from the moment you take ownership of the home. Since they are paid in arrears, your seller will give you a credit for the months he/she lived in the home to cover their tax liability, but moving forward all taxes are your responsibility.

If you’re setting up an escrow account, you’ll fund your account with 2 months of real estate taxes reserves, and depending on the timing of your closing, you may have to put a few more months of taxes in the account so there’s enough to pay the taxes on time.

If you didn’t set up an escrow account, you’ll be responsible for keeping up with your property taxes. Tax payments can be due quarterly, semi-annually, or annually. Know the cost of the taxes in your area and make sure you set aside enough money to cover it.

HOA Dues: If your new home is in a homeowner’s association (or HOA), you may need to pay some dues upfront. From there, you’ll want to budget for dues in whatever increment the HOA charges (e.g., monthly, quarterly, or annually).

Making and keeping a budget is one of the best things you can do when you’re buying a home. Plan for as much as you can, including the upfront, ongoing, and even unexpected costs so you can give yourself financial peace of mind.


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