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The “Other” Budget of Homeownership

Owning a home is something you should enjoy, not be a financial struggle. Knowing how much home you can afford goes beyond calculating your monthly Home Loan payment—that’s why it’s important to consider all of the “extra costs” of being a homeowner. To help you prepare, we’ve pulled together these budgeting tips.

The 25% rule. An excellent place to start when determining how much you should pay for your future home is using the 25% rule. Calculate 25% of your household’s gross monthly income to determine what fits comfortably in your budget. For example, if your household income is $6,000, your monthly Home Loan payment should be at or around $1,500 to fit comfortably within your budget.

New and regular expenses. When you make the move from renter to homeowner, you’ll need to jot down any new household expenses and add those to your existing budget. This could include:

  • Homeowners Association (HOA) Dues—if your new home is in a planned neighborhood, you’ll likely be part of a Homeowners Association. HOA dues will vary, but you should plan to tack on several hundred dollars extra to your budget.
  • Homeowner, Earthquake, and/or Flood Insurance—depending on where your home is located, your lender may require you to purchase flood insurance in addition to your homeowner policy. In California, earthquake coverage is optional, but you’ll want to work with your insurance agent to determine if it’s a good fit for your situation.
  • Property Taxes—if you have what’s called an impound account, your annual property taxes will be included in your monthly payment. If you don’t, you’ll be responsible for setting aside those funds so you’re prepared when your property taxes are due. It isn’t unusual for this type of tax to fluctuate from year to year or be adjusted if you’ve made any major remodels or improvements to your home.
  • Home Maintenance and Upkeep—this includes things like yard care, interior and exterior painting, pest control, appliance repair or replacement, plumbing and electrical, and more.

Costs of closing. You’ve finally saved up enough for a down payment; you’re ready to buy, right? Maybe not. In addition to your down payment, you’ll need to be prepared to pay for additional expenses, including earnest money, home appraisal, closing costs, and moving expenses.

Emergency Fund. With homeownership, your monthly living expenses will likely increase. Before moving forward with purchasing a new home, you’ll want to determine if your existing emergency fund will cover three to six months of your new living expenses. If not, you may want to add the additional amount you’ll need to save into your budget. Learn more about Emergency Funds in this blog.

You’ve worked hard to save up for a home, and we’re here to provide you with the resources and tools you’ll need to buy your next home. For more information about homeownership, check out this Achieve Financial Success playlist or download our Home Buyers Guide. If you’re ready to purchase your next home with Yolo County’s #1 Best Mortgage Company, schedule a call with one of our Real Estate experts.

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To apply for a Home Loan, you must qualify for membership, and the property must be located in Yolo, Sacramento, Placer, or El Dorado counties or within 50 miles of our corporate office. 

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