How to Budget for a House

You’ve made up your mind. You’ve set a goal. You’re going to buy a home. How do you do it? Educating yourself about home loans and the housing market in your area is smart. Polishing your credit score is essential. However, budgeting is bound to be part of the plan. After all, knowing how to budget for a house will help you accrue the savings you need to fund your purchase. It will also be good practice for when you’re a homeowner and you need to manage your new household’s budget. Scroll down to learn how to budget for a house.

When it comes to buying a house, there’s a lot to think about. How much can you afford? How can you save for a down payment? When thinking about how to budget for a house, you’re thinking about the future. How should you balance that against your current wants and needs?

The 28-Percent Rule

How much house can you truly afford to buy? The 28-percent rule may offer a clue. As Investopedia explains, this rule suggests that your mortgage payment shouldn’t be more than 28 percent of your gross income each month. What happens if you break the rule? You may find yourself “house poor.” People in this situation often find themselves struggling to cover the costs of making their monthly mortgage payments and maintaining their homes. Learning to budget effectively can actually help prevent this problem or help you recover if an unexpected event like a job loss or medical issue causes financial problems.

Budgeting for a Down Payment

As Credit Karma points out, building a budget is really about two things: income and expenses. Once you know what you have coming in and going out, you’ll be in a better position to take control of your finances. How do you do it? Grab a pencil and paper or set up a spreadsheet on your computer. Then, make a list of all your income sources. Next, list all of your expenses. If you aren’t sure where your cash goes, you may need to track your habits for a few weeks to see where you’re really spending your money. Once you have an answer, subtract your expenses from your income. If there’s anything left, that’s the money you can designate for savings or fun. How can you increase the amount left over? You’ll need to cut your expenses or increase your income. Naturally, if you’re hoping to buy a home, you’ll want to put at least part of that money aside for your down payment and other costs associated with your future home purchase.

Tips for a Successful Budget

Just the thought of budgeting can make many people groan. That’s a shame because a budget is actually a useful tool that can really help you reach your financial goals. The trick is to create a workable budget that meets your needs and reaches towards your goals while still allowing some room for fun. How do you do it? ReadyNest offers these tips for a successful budget:

Be specific about your goals. State your objectives clearly so that everyone knows what you’re working towards. A clear purpose can make it easier to stick to the plan.
Be cooperative. Talk with everyone in the household. Get their perspectives about where you can make cuts and where you can’t. Understanding what people are willing to sacrifice to achieve the intended reward can help you all avoid temptation.
Be ready to negotiate. If you’re creating a budget with a partner, compromise is part of the process. Be prepared to try out different approaches until you find the one that works best for your household.
Be realistic. Setting goals that are too tough will simply cause frustration and failure.
Be determined. Temptation is everywhere. Remember your goals, and stick to your budget.
Be flexible. Life is full of surprises, and your budget should be flexible enough to handle them.
Be responsible. Make it a point to keep records so that you can track your efforts. Review what’s working and what isn’t, and make any necessary adjustments.

How to Budget for a House