Ready to buy a home? First, build a budget.

What to consider beyond the down payment.

Buying a home can be exciting, joyful—and a little scary. You may wonder, should I buy now or wait? How much can I afford? Will I get in over my head?

A well-built budget is a good defense against making a mistake during the exciting, joyful, and anxiety-producing process of buying a home.

“It’s a good idea to set up a strong budget before looking at specific homes,” says Molly Savilla, a mortgage loan officer with The Huntington National Bank. The trick is to recognize the many factors that shape a good budget, so you’ll feel more confident before you start looking.

But you may be surprised to hear that budgeting goes way beyond knowing house prices in the neighborhoods you prefer.

“There are a lot of other costs to home ownership that people don’t always consider,” warns Suzanne Bartholomae, assistant professor and family finance extension specialist at Iowa State University.

Check out the steps below to learn more.

1. Step back to get the big picture

It’s important to view homebuying in the context of your broader finances, Savilla notes. “You have to budget for every penny, from personal taxes to clothing and groceries.” Online calculators can help you compare various loans, estimate closing costs, and decide whether to rent or own.

With this information, you can do a rough estimate of what an affordable monthly mortgage payment may be. Bear in mind that property taxes vary by location and can have a major impact on your monthly payments.

“As a rule of thumb, your payments, including property taxes and insurance, shouldn’t exceed 29% of your gross monthly income,” Savilla says. (That’s $1,450 for a monthly income of $5,000.) The 29% rule isn’t absolute, Savilla says, but higher house payments could require sacrifices elsewhere—more modest vacations, for example, or waiting longer to buy a new car.

2. Explore your mortgage options

Mortgage costs are affected by the loan size, interest rate, and the length of the loan. (Learn more about how to compare mortgages here.) To get a clearer picture, speak with a mortgage loan officer, suggests Vicky Scarnuley, a licensed real estate agent based in Connecticut. (Find a mortgage loan officer near you.)

“They’ll help you determine your financial status, including your credit rating, income, assets and debt,” Scarnuly adds. After a review, you may prequalify for a loan at a certain level.

Keep in mind that the cost of your mortgage is affected by how big of a down payment you can afford. The more you put down, the lower your monthly mortgage payments can be; if you can put down 20%, you also may eliminate the need for costly private mortgage insurance.

But stretching to make a large down payment isn’t always the way to go, Savilla notes, because your budget needs to take into account other expenses—closing costs on your purchase, moving in, furnishing new rooms, and having money to pay for emergencies to name a few.

3. Estimate your upfront costs

Buying the house, closing the deal, and moving in may require chunks of cash from your personal savings.

  • Closing. It’s easy to overlook a host of expenses known collectively as closing costs. These cover everything from mortgage application fees and attorney fees to home inspections, title searches, and up-front insurance costs. They are typically between 2% to 5% of the purchase price§ ($2,400 to $6,000 for a house costing $120,000) though they can be higher. As part of your negotiations, the seller may agree to assume a portion of these costs, so discuss ways to lower costs with your agent.
  • Moving. Nationally, moving costs average $2,300 within a state (based on four movers at $200 per hour and an average shipment weight of 7,400 pounds) and $4,300 for out-of-state (based on an average shipment weight of 7,400 pounds and an average distance of 1,225 miles) . Packing your own boxes can save money even if you’re using a professional mover. For first-time buyers with few possessions, a rental truck and friends can make moving downright cheap.
  • Fixing. A house inspection during the purchase process—covering the heating system, plumbing, roof, insulation, and other major parts of the house†† —can alert you to any immediate or looming repair needs. Unless the seller has agreed to take care of these issues as part of the sale, you should factor those into your costs.
4. Anticipate ongoing costs

If you’ve not yet been a homeowner, it’s easy to underestimate the ongoing costs of ownership in addition to the new mortgage. These include:

  • Utilities and maintenance. Utility bills can be higher than you think, Savilla says. She suggests that new homebuyers call utility providers ahead of time. They may be able to provide estimates of monthly charges for a house you’re considering. Routine maintenance and ongoing home repairs are inevitable. If and when the roof starts to leak, you’re going to have to find a solution, and it helps to be prepared.
  • The cost of the new neighborhood. If you’re further from your job, it could cost more to commute. Local facilities like daycare or a gym could be more expensive. As much as possible, estimate any higher costs of your new location beforehand and budget for it.

Knowing your range will help you avoid the disappointment of falling in love with a house, only to discover that it’s out of reach. Says Bartholomae, “Now, you’ll fall in love with houses you can afford.” For first-time homebuyers, the adventure is ahead of you.

Contact a Huntington mortgage specialist and learn more about mortgages and homebuying.

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Interview with Suzanne Bartholomae.

Interview with Vicky Scarnuley.

§“What Are Closing Costs and How Much Are They?” Zillow, https://www.zillow.com/mortgage-learning/closing-costs/

“How Much Does a Moving Company Cost,” Moving.com/The Realtor.com Network, https://www.moving.com/tips/how-much-does-a-moving-company-cost/

††“Frequently Asked Questions on Home Inspections,” American Society of Home Inspectors, https://www.homeinspector.org/FAQs-on-Inspection#2

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