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How to Set a Budget for Buying Your First Home

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June 12, 2021

You’ve made it. You’re finally buying your first home! Whether you’re moving out of your parent’s house or leaving the apartment you’ve been in forever, buying your first house is a big deal and calls for lots of celebration. It can also be costly, so budgeting for your first home is vital.

When you think of buying a house, you may factor in a mortgage payment and utilities, but there are many additional factors that can significantly raise your costs and catch buyers off guard if they’re not prepared. In addition to a down payment, you’ll need to factor in paying for property taxes, homeowners insurance, and repairs.

This guide breaks down how to budget for all these expenses so you can focus on making your house a home.

Budget review

Before you can set a budget for buying a house, you have to know what a budget looks like! Let’s review the aspects of a budget before diving in.

A budget is a tool to help you manage your money and tell it exactly where to go. Instead of looking at your bank statements at the end of the month and wondering where all your money went, a budget controls every dollar so you have room for everything you need and the things you want too.

A great way to budget is by using the 50/30/20 rule. This rule separates your income into three categories: fixed expenses, variable expenses, and savings. The main aspect of your budget to focus on when buying your first home is your fixed expenses.

Fixed expenses include anything you absolutely need to live and work like rent, utilities, internet if you work from home, cell phone plan, groceries, and transportation costs.

Factors to consider in your budget

The last thing you would want is to sign a mortgage on a house and realize you don’t have enough to pay all the expenses. So, here are some of the factors to think about when making your homebuying budget.

Down payment

The down payment is the first payment you’ll have to make when you buy your first home. The down payment is a specific percentage of the total price of your home. Down payments range from 5% to 20% of the total cost of your home.

The down payment affects a few factors. If you make a lower down payment to begin with, you’ll have a higher interest rate when paying off your mortgage, but if you make a higher down payment (closer to 20%) you’ll have a lower interest rate. This is because your down payment represents your investment in the home.

If you put less than 20% down, your lender may also require you to purchase private mortgage insurance. This type of insurance protects the lender in the event that you stop making payments on your home loan.

>>CALCULATOR: Estimate your monthly mortgage payment

Housing and utilities

Housing and utilities are two major expenses for most people. When you buy a home, these expenses will remain. But other housing-related factors you might not have thought of include taxes and insurance. 

How much are you spending on rent currently? What percentage of your income does it account for? Most experts recommend spending no more than 30% on rent and utilities combined. 

Those who spend 30% report very limited free spending and savings. To play it safe, you may want to budget 25% for rent and utilities. 

As you’re looking for homes to purchase, a mortgage calculator will help you get an idea of your monthly payment.

Utilities cover a wide umbrella of things. From internet and electricity to water, this category represents the things you use in your home that also cost money. It’s also important to note that homes cost much more to power than apartments, so for your first home, budget out more than you think you’ll need. The numbers can add up fast.

The best way to budget for utilities is to call the service providers in your area and ask what the average monthly rates are. You can ask for a cost calculator that can tell you an estimated price depending on how many people are going to live in your home and how much you’re planning to use. You can also get friendly with your neighbors and ask how much they pay per month.

Home insurance

Home insurance is the best way to protect you and your new home, so it’s vital that you factor this in with your budget. Home insurance protects you and your home in the event that it’s damaged, your belongings are stolen, or someone gets injured on your property. If you don’t have home insurance, you may have to cough up hundreds of thousands of dollars in expenses in the event that your house is damaged.

There are three important aspects of homeowners insurance: dwelling protection, personal property insurance, and liability insurance. These coverages protect the structure of your home if it’s destroyed by fire or other perils, your belongings if they’re stolen, and protects you from legal fees if someone is injured inside your home.

Having homeowners insurance is an essential part of being a homeowner. Be sure to shop around and get quotes to make sure you get the best rate. 


Depending on the condition of the home you’re buying, it’s important to factor in any repairs that need to be made to your buying budget. For instance, you may need to replace or repair the plumbing system, replace the walls or floors, or redo the carpet before you get settled. If you buy a big fixer upper, you’ll have a lot of repair costs, whereas if you buy a newer home, you won’t have as many.

In addition to this, some experts recommend setting money aside for emergency home repairs. The general rule of thumb on this is to set aside 1% of what you paid for your home to have in case you need to fix a part of it in the future. 

For example, if your home was $300,000, it’s a good idea to have $3,000 set aside for repairs.

Homeowners insurance can also help pay for repairs and damages, but in the event that they don’t cover the damage, or you have a high deductible, this rule helps you stay prepared.

Additional expenses

It’s also important to factor in additional expenses to your costs when you first buy a home. Unfortunately, your home won’t come with all the pretty furniture displayed during an open house.

Most homeowners have to furnish homes themselves and provide necessary appliances to live comfortably. For instance, essential furniture like your bed, dresser to store clothes, kitchen table, chairs, and sofa are likely budgeted to be top priority.

Other furniture items may be lower on the list of priorities. For instance, if you’ve always wanted a papasan chair or barstools to decorate your kitchen, these can probably wait until you’re a bit more settled.

You will also need to factor in appliances like a dishwasher, fridge, a washing machine and dryer for your laundry, and more. Depending on what furniture and appliances you need to buy, your budget for buying your home will change.


When you buy your first home, you want to be financially prepared. The best way to do this is to set a budget and stick to it so you aren’t surprised when billing time comes around. By knowing how much money to set aside for your down payment, mortgage, utilities, repairs, furnishings, and necessary appliances to live, you can make your first home-buying experience a breeze.