Using a house payment calculator isn't the only thing you need to do when considering your monthly budget. There are many hidden costs of owning a home that you'll need to factor in when making this big financial commitment. Knowing how to adjust your budget after purchasing is something you'll want to learn as soon as you can during the buying process to avoid everything from money headaches to foreclosure - something that one of every 200 homeowners face every year.
If you learn how to budget, you can help ensure that you'll be able to afford all the expenses of homeownership plus your other bills without having to live off Ramen noodles. And, you're likely to still have at least a little over for fun.
Calculate All the Costs of Owning a Home
When figuring out your expenses, you need to think of everything related to owning your home. As mentioned, that monthly mortgage payment is just the tip of the iceberg. There are many other things to budget for beyond that, such as property taxes, insurance, and utilities like water, electricity, and garbage.
If you purchased a condo or a home in a neighborhood with a homeowner's association (HOA), your mortgage payment might include escrow for the insurance, dues, and property taxes, but if it doesn't, they'll need to be considered separately when calculating your budget.
Set Aside Money for Unexpected Maintenance and Repairs
You probably already know that having an emergency fund is important in general to help cover expenses such as a vehicle breakdown or a large copayment for medical care. When buying a home, you should also set up a separate savings account for any unplanned maintenance and repairs. Ideally, it should include an amount that's between one and four percent of the home's purchase price.
If it's brand-new or close to it, the lower end of the range should be fine as major features like appliances, the heating, and cooling system, and the roof should be in good shape. If you buy a home that's 20 years older or more, you'll need to save the higher end of that range, as many features are probably nearing the end of their useful life.
Reducing Other Expenses
If the many costs of owning a home significantly reduce the amount of money you have left over every month after the bills are paid, you may need to consider cutting back other expenses that aren't absolutely necessary. Less disposable income requires taking time to distinguish wants from needs so that you can adjust accordingly.
That might mean eliminating cable and streaming TV shows instead, dining out less often, bringing your lunch to work, and so on. On the other hand, if you have more disposable income left, you might consider funneling extra toward savings for that emergency fund or your retirement.
Regular Reviews
Creating a budget isn't something that's "one and done." After adding up all the costs of being a homeowner, including the hidden ones, you'll need to review your budget regularly, adjusting your savings and spending as necessary. Once every quarter, or around four times a year, if not more, is best, especially if you purchased an older home. After moving in, you'll have a better idea of what all of the expenses will be.
