Buying your first home is exciting. However, it can also be quite stressful as homeownership comes with many monthly expenses. The good news is you can plan for your monthly home expenses beforehand and reduce the risk of unwanted financial surprises.
Below, we’ll dive deeper into how you can determine how much house you can afford, what type of down payment you need to save, what’s included in your mortgage payment, and other monthly home expenses to keep on your radar.
- Your monthly home expenses should be less than 28% of your gross monthly income.
- Typically, you’ll need a down payment of at least 3%, depending on your loan program, and the higher the down payment, the lower your monthly mortgage payment.
- In addition to your mortgage payment, you should consider the monthly costs of homeowners association fees, utilities, furniture and appliances, routine maintenance, and significant repairs.
How Much House Can You Afford?
As a general rule of thumb, the Federal Deposit Insurance Corporation (FDIC) suggests estimating a mortgage of two to three times your household income. If your income is $100,000, you may be able to afford a home that costs $200,000 to $300,000, for example.
Lenders expect your principal, interest, taxes, and insurance to be less than or equal to 25% to 28% of your gross monthly income, notes the FDIC. Let’s say your gross monthly income is $10,000. In this case, your mortgage payment should be $2,800 or less per month.
According to the Consumer Expenditure Survey (CES) published in December 2021 by the U.S. Bureau of Labor Statistics (BLS), consumers spend about 35% on housing. The average of $7,473 spent per year on owned housing includes mortgage interest and charges ($2,962), property taxes ($2,353), maintenance, repairs, and insurance, and other expenses ($2,158), but not principal. In contrast, renters spent $4,408 on housing costs.
Take a close look at your monthly budget to determine how much you feel comfortable spending on housing, along with any future financial goal such as retirement savings. Just because a financial expert, lender, or online calculator says you can afford to spend a certain amount on a house doesn’t mean you should.
How Much Down Payment Do You Need?
Your home’s purchase price and the loan program you choose will help you figure out the ideal down payment. Generally speaking, you need to put at least 3% down. Many home loans, however, require 5% or more.
To save as much money as possible, it’s a good idea to come up with a down payment of at least 20%. If you opt for a conventional loan, 20% down can help you avoid private mortgage insurance (PMI) and possibly receive a lower interest rate. PMI is designed to protect the lender from the risk of default and will be required until you reach 20% equity in your home. The more money you put toward your down payment, the less money you'll spend per month on your mortgage costs.
Don't forget to consider closing costs or the expenses associated with finalizing your home purchase. Your home price, down payment, lender costs, loan type, and home location will all play a role in your closing costs. Usually, however, they range from 2% to 5% of your home price.
What’s Included in Your Mortgage Payment?
Your mortgage payment will consist of four main parts, including:
- Principal: The amount of money you borrowed to buy your house or the loan amount that you still need to pay back.
- Interest: The cost your lender charges you to borrow money, usually expressed as a percentage of your borrowed amount.
- Taxes: The annual real estate or property takes you’ll pay on your purchased home. The national median is 1.1%, but rates vary widely by location, according to the Consumer Finance Protection Bureau (CFPB).
- Insurance: Homeowner’s insurance protects you and your lender from house and personal property damage, along with liability for any injury to a visitor. The average cost of insurance is $750, according to the CFPB.
If you didn’t put down 20% for the purchase, you’ll also pay the PMI mentioned earlier.
Other Monthly Home Expenses To Consider
In addition to your mortgage payment, there are other, sometimes-surprising monthly home expenses that could add up to almost $900 per month annually.
|Type||Example||CES Annual Cost||Monthly Cost|
|Homeowner Association Fees||Co-op dues||Variable||Variable|
|Household Furnishings||Furniture, appliances||$2,346||$196|
|Household Maintenance||Repairs to the home and insurance||$2,158||$180|
|Household Expenses||Appliance repairs, garden tools, services||$1,118||$93|
|Cleaning Supplies||Laundry, cleaning equipment||$837||$70|
Homeowners Association Fees
If you choose to live in a condo, co-op, or specific neighborhood, you might be required to join a homeowner’s association and pay fees. These fees can range from a few hundred dollars a month to thousands, making it essential for you to budget for them if necessary. In most cases, you’ll pay the fees to the HOA.
Water, heating, cooling, electricity, gas, trash service, and cell phone service are all utilities. Your utility costs will depend on the size and quality of your living space, your location, and how you use your utilities. Around $4,158 is spent annually on gas, electricity, phone services, water, and other utility services, according to the CES survey. That's about $347 per month.
Heating and cooling costs can fluctuate by season, but utility companies usually offer budget billing plans, which charge the same amount every month, making bills easier to plan for. Other utility providers may allow you to lower your costs or earn a rebate by using electricity or other energy in off-peak hours, such as the early morning or late evening.
Furniture and Appliances
On average, the CES survey revealed a spend of $2,346 annually on household furnishings, including furniture, major and small appliances, textiles, and floor coverings. That's about $196 per month. Of course, you may spend more or less than this.
But when you transition from renting to owning a home, you may have to invest in new furniture and appliances. Your current furniture may be too large or too small for some spaces, or the home might be missing a washer or dryer. Costs can depend on your finances and whether you buy new or used. You don’t have to furnish it all at once and can do so gradually over time, especially if you’re not using every room.
Maintenance, Repairs and Cleaning
As mentioned earlier, the average U.S. consumer spends about $2,158 per year on household maintenance, including expenses for repairs and maintenance contracted out, and materials for repairs and maintenance you do yourself. That's about $180 per month. You should set aside between 1% of your home's value per year for routine maintenance in a home maintenance fund, suggests the Consumer Finance Protection Bureau.
Other household expenses add up to another $1,118 per year, or $93 per month, and include:
- Housekeeping, gardening, and lawn care services
- Pest control products and services
- Home security systems service fees
- Renting other household equipment
These expenses also include repair of appliances, household equipment, furniture, lawn and garden tools, and renting other household equipment. In addition, annual housekeeping supplies total another $837, including laundry and cleaning products and lawn and garden supplies—that's about $70 per month.
Even if your home is brand new, you may face unexpected major repairs to replace a new roof or waterproof your basement. For this reason, it’s wise to have an emergency fund of three to six months worth of expenses.
How To Save and Budget for Your First Home
Since home ownership isn’t cheap, make every effort to save for your first home. Review your budget to see where you reduce expenses and plan for unexpected costs (such as pest control services from a surprise ant invasion). Also, make regular contributions to your savings account. In addition, you might want to explore down payment and closing cost assistance programs available from nonprofits and government agencies.
Frequently Asked Questions (FAQs)
How can I lower my housing costs?
To spend less on housing, you may want to reduce your utility usage and shop around for a less expensive homeowners insurance policy. Also, if you feel your property tax assessment is too high, appeal it with your local tax authority for a chance to save in the future.
Is renting a home more expensive than buying one?
Whether renting a home is more expensive than buying one depends on your unique situation. To determine if it makes sense to rent or buy, calculate your price-to-rent ratio, suggests the National Association of Realtors. Divide the median home price by the median annual rent. A ratio of 15 or less means that buying is the better choice.
How do I calculate my monthly mortgage payment?
To calculate your monthly mortgage payment, you’ll need to know your home price, down payment, length of the mortgage, and interest rate. There are plenty of online calculators that can give you an answer with this information. Don’t forget to add in insurance, taxes, and any PMI payments to get a more accurate picture of your monthly house payment.
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FDIC. "Loans and Mortgages."
CFPB. "Determine Your Down Payment."
CFPB. "Monthly Payment Worksheet."
National Association of Realtors. “Price-to-Rent Ratios by State From 2014-2019.”