# How to Budget for a New Home

Owning a home is a huge blessing when you have the money to make it work. But how do you know how much home you can afford?

That’s where the dreaded B-word comes in. Yep, a budget. Budgeting may get a bad rap, but it’s really quite simple to do. Let’s break it down into a real-world example to see how it works.

## A Formula for Home-Buying Success

If you follow Dave’s favorite home-buying plan—paying cash for your home—you’re only limited by how much you can save. If you’re not ready to make an all-cash offer, however, you need to factor a mortgage payment into your monthly budget.

If you need help figuring out how much house you can afford, try our free mortgage calculator.

Start by adding up every source of income that comes into your checking account each month.

Paycheck 1 = \$2,100
Paycheck 2 = \$2,100
Freelance Work = \$800

Total Monthly Income = \$5,000

Next, write down your monthly expenses. Here are a few common categories to consider.

Saving = \$750
Utilities = \$400
Food = \$500
Clothing = \$100
Transportation = \$450
Medical = \$350
Personal = \$250
Recreation = \$200

Total Non-Housing Expenses = \$3,500

That leaves \$1,500 to cover housing costs. Dave recommends keeping your mortgage payment to no more than 25% of your monthly take-home pay on a 15-year fixed-rate mortgage. Don’t forget to save a little extra each month to cover regular maintenance as well as well as future home improvements and furniture replacement.

Maximum Mortgage Payment = \$1,250
Maintenance and Repair Fund = \$250

Total Housing Expenses = \$1,500

The magic happens when your income minus outgo equals zero. Why is zero the magic number? Because that means you’ve given every dollar a purpose.

\$5,000 - \$3,500 - \$1,500 = \$0

### Related Articles

Everybody’s budget is going to be different. We’ve assumed some things in this sample. If some of these categories don’t fit, repurpose your money elsewhere. Feel free to make it your own! Just make sure your mortgage payment doesn’t eat up more than a quarter of your monthly income so you have enough money to cover the other categories without straining your budget.

Related: Want to learn more about how to save up a down payment on a house fast? Our 5-Day Home Buyer Savings Plan will help you discover simple tricks to save a five-figure down payment by this time next year!

## Isn’t Something Missing?

You may have noticed one category wasn’t included in our sample budget: debt. That’s because Dave recommends paying off all non-mortgage debts before taking the leap into home ownership. It’s not the American Dream if you live under a leaky roof you can’t afford to fix!

If debt is taking up any percentage of your income right now, hold off on purchasing a home and work at becoming debt-free first. You also want to wait until you have a fully funded emergency fund to cover any unexpected expenses that come your way, plus you want enough cash to put at least 10–20% down on your new home. Lots of folks have done it, and you can too! You won’t regret it.

## The Final Piece of the Equation

You’ve worked hard to save your money for a home. Now here’s how to keep more of it when you buy: Partner with a fantastic real estate agent. A buyer’s agent fights for your best interests at the negotiation table and saves you an average of 5% on your home purchase. That’s \$10,000 if you buy a \$200,000 home!

If you’re looking for an expert negotiator to help you get the most home for your money, we can introduce you to a real estate agent in your area.

### House Hunting: Everything You Need to Know

House hunting involves more than clicking through pretty pictures. Follow these tips to find the best house at the right price for you and your family.

### Property Taxes and Your Mortgage: What You Need to Know

If you own a home, property taxes are just a fact of life. Here’s a look into what property taxes are and how to avoid a mistake that could cost you hundreds–even thousands–of dollars each year!

### What is a Down Payment and How Much Do You Need?

A down payment is your stake in the ground, your first leap into homeownership. So how much should you put down? Are larger down payments always better?

### How to Battle Temptation in the Search for Your Starter Home

For bank-qualified first-time buyers, the lure of the instant dream home is often too strong to resist.

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