How to Budget for Buying a House
So you’re eyeing a home to call your own but not sure where to start on the money side of things? Here’s how to budget for a house—and we’re not just talking about that elusive down payment.
I’ve bought three houses in my life. The first two times, it was so incredibly stressful. I lost so much sleep just worrying about the money. But that third time? Everything was different. I had a budget, and it made all the difference.
I mean let’s be honest—A LOT of money changes hands when you buy a house—and it’s not just the down payment. It seemed like every time I turned around, I was writing a check to someone for something. Closing costs, inspections, moving costs—it’s all so overwhelming. And as far as the mortgage payment went, I was just crossing my fingers and toes that I could afford the payment I was signing up for (the online calculator said I could afford it, so that must be true, right?!).
Everything ended up working out fine, but that doesn’t mean it wasn’t stressful. That stress came from uncertainty. I was making all these financial decisions based on a very murky picture of my money.
When I bought this third house however, I’d been using YNAB to budget for a long time, and that made all the difference. First, I had more total confidence in my overall financial situation. I knew exactly how much of a mortgage payment I could afford, and I knew exactly how much I could spend on renovations, and I knew exactly how much I should spend on moving costs. Everything was dialed in.
But the best part? I was able to specifically plan and save for all those “new house” expenses: the furniture I wanted to buy, the painting project I would soon embark on. So if you’re eyeing a house of your own but want to avoid the financial tangle, I want to tell you how I managed this, so I can ease your stress as well.
First, let’s run through the expenses you need to be saving for as you get ready for the house.
Budget Categories When You’re Buying a Home
This is the biggie. It’s probably that number you’re most stressed about—the pile of multiple thousands of dollars that needs to appear between now and that future house purchase. Shop around on Zillow or Redfin to get an idea of home costs in the area you want to live. While it’s ideal to have a 20% down payment to avoid private mortgage insurance (PMI), if this is your first home, that chunk of money might not be realistic yet. There are first-time home buyer programs that require less down. If you’re not sure how much to save, it’s a good idea to meet with the bank where you’ll be setting up the mortgage to get some advice.
The bank can also get you pre-approved for the loan. That’s really important (read: virtually *essential*) in today’s fast-moving market. If two identical offers come in for a house and one is pre-approved and one is not, guess who has the advantage? Get pre-approved, you’ll be glad you did.
Here’s an example budget of what one homeowner’s costs might look like on a $300K house:
At the very least, you’ll want a main building inspection. The cost will vary depending on the house. My last building inspection cost $865, the one before that $400. They were inspecting the house and a large barn. The inspector will examine the house from top to bottom and give you a written report. For me, that report felt like a nice little To-do list for the house. You may decide after the inspection to have the seller do some of the work, that can all be negotiated.
And not for nothing—an inspection gives you a legal way to back out of the deal if they find big problems. The initial contract is usually “pending inspection.” This happened to me once. I paid for an inspection and it revealed problems I did not want to take on. In my mind, the money I spent on that inspection did its job. The $400 I spent on that inspection saved thousands of dollars (and probably thousands of hours) I would have spent on repairs. I don’t regret it one bit.
Depending on where the house is located, you may want to consider other types of inspections. Some common inspections are:
Here in Maine, where I live, I’ve done septic, sewer, and radon inspections. A buyer broker who knows your area can recommend which inspections you should do.
This is the amount of money you need to bring to the closing, and this will vary based on the bank and type of loan. A typical amount for closing costs is between 2-5% of the home purchase price. The loan company will estimate this for you. Once you’re under contract, they will estimate this pretty close to the penny. But even in the early days when you’re still looking, they should be able to give you a ballpark estimate.
Maybe you’ll need to rent a truck, or maybe you’ll need to pay your friends in pizza to help you move. But one way or another, it’s going to cost you, so set some money aside for it. If you’re renting a truck you can call a few companies to get an estimate so you know how much to save.
Pro Tip: Add in some money to buy boxes. My first moves were done with scavenged banana boxes from the grocery store. It was hard.
Then I learned they make boxes just for moving things. Who knew?!?! I bought some for my last move. Magical. 10 out of 10 would recommend. When you are done with them, give them to a person in your life who’s moving. They will thank you. Moving boxes have good karma. Trust me on this.
Okay, so you may have known about these expenses, they’re pretty common. But now let me recommend four more things you should to save for as you get ready for your new house.
Utility Installation Fees
You’re going to have to turn on or transfer service for the electricity, maybe a phone line, water, gas, and internet. In my experience, the companies who supply these services have not turned these things on for free. They charge an extra “one time” installation / set up cost. Friends—these add up. Just save a couple hundred bucks for this, you will thank me.
You need to prepare for the dreaded “kitchenless” period—the time that begins when you pack your kitchen supplies in the old place, and ends when you unpack them in the new place.
This is an awful, awful period. No joke. You can pack the kitchen last to mitigate this, but during this kitchenless period you will be stressed to the max with the logistics of the move. (You won’t be stressed about the money though, because we are taking care of that.) And friends, you aren’t going to want to cook anyway. Guaranteed.
So plan for this. Plan for eating out during this kitchenless time. Do not feel guilty about this. Order that sub, that speciality pizza. Go sit down for a nice meal at some point. Enjoy it. You deserve it. Just do it and pat yourself on the back for setting money aside for this.
You’re going to need some things when you move into the new house. What things? I don’t know, but I know you will need them. You’ll probably need cleaning supplies. Maybe you’ll need new trash cans, or extra trash bags as you clean up from unpacking. In one place, I needed to buy shades for every window in the house. Maybe this is your first time with a yard, and you need to buy some rakes.
All I know for sure is, the house will need things, and you’ll be glad you saved some money for this.
This category is a little less pressing than some of the other, more immediate categories. Card tables work just fine for a dining room table for at least a year. The floor is comfortable enough with a throw pillow, right? But if you’re someone who will want to nest right away and your current furniture setup just isn’t cutting it (for whatever reason), acknowledge this desire and budget for it! You could spend $500 on Facebook Marketplace finds, or $5,000+ after a trip to Pottery Barn. Pick a number for your budget and try to be realistic.
And now for my favorite category from this group:
Yep. That’s what I called it. I had over a thousand dollars tucked in there. As I approached the closing, it made me so happy to see some money in there. I guess you could say it was the emergency fund for the house purchase. I ended up reallocating it after the closing, but it was so nice to see it there, just ready for an unknown obstacle.
How to Budget for a House in YNAB
If you’re getting ready to buy a house, the first thing you need to do is make a category group in your budget for the new house. Then you’ll add categories for each expense related to the purchase.
Mine looked like this:
Just add a target amount to each category, that way you’ll know how you’re doing in each area. I found this incredibly comforting, more so than one big pile of money.
There’s a big difference between “I have a lot of money for the new house purchase.” and “I have the down payment, I have the moving money, I have the money for the inspections, money for food, and so on.” The absolute clarity removed so much uncertainty, and as a result, so much stress.
I wish I could tell you that this will remove all the stress of moving, but it won’t. But the fact that you won’t be worrying about the money will leave your head clear to manage the logistics. But you’ll get through it and thank your budget once it’s done.