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Preparing to shop

Budget for new or changed expenses

Now that you have a clear picture of your current spending habits, you can develop a forward-looking budget for how you’ll spend your money once you’ve bought a new home. This lets you decide on a target monthly home payment.

What to do now

Decide how much you can afford to spend on a total monthly home payment

  • Your total monthly home payment includes mortgage principal, interest, property taxes, homeowner's insurance, and any mortgage insurance
  • Estimate expenses for electricity, gas, cable, water, and other required monthly costs of homeownership such as condo or Homeowner’s Association (HOA) dues.  Also estimate expenses for home maintenance and improvements. Make sure you will have enough money to pay for these costs in addition to your total monthly home payment.
  • Think about what your budget will be once you have bought your home, and decide how much you want to be saving each month for emergencies and other goals.

Make adjustments

If you are considering cutting back on some of your discretionary spending in order to be able to comfortably afford the kind of home you want, take a second look at your budget and make realistic adjustments. Make sure your adjusted budget adequately accounts for all the new costs of homeownership.

What to know

This is just the first step in deciding how much you can afford

As you move forward in your home search and mortgage process, you'll gather more information and can refine your assumptions. Come back to this step and revisit your budget and your calculations as you gather more information. 

Many homeowners pay their property taxes and homeowners insurance bundled into their mortgage payment

This arrangement is known as an escrow account. If you do not have an escrow account, you will still have to pay these costs. An escrow account lets you put aside the money monthly so that you won’t have a big expense during the year.

Some types of homes may have additional required monthly costs

If you’re interested in buying a condo, co-op, or a home in a planned subdivision or other organized community with shared services, you usually have to pay condo fees or Homeowners Association (HOA) dues. These fees vary widely depending on the amenities provided by the community. Consider these fees carefully when comparing potential homes. You may not be able to afford a home that is generally in your price range if the condo or HOA fees are higher than you were expecting. Condo or HOA fees are usually paid separately from your monthly mortgage payment.

How to avoid pitfalls

Owning a home means more than just trading a rent payment for a mortgage payment

New homeowners are often surprised by the extra costs of owning property, including insurance, taxes, and association or condo fees. You also have repair costs, upkeep, and may want to make improvements and upgrades. A bigger space may need new furnishings or appliances. Finally, there are things you pay for as a homeowner that may have been included in your rent previously, such as water, trash pickup, and other utilities.

Visit our sources page to learn more about the facts and numbers we reference.

The process and forms described on this page reflect mortgage regulations that apply to most mortgages.