Budgeting for a Home - a questions for homeowners!

beautifulmess13

In crunching numbers during our house hunt, I'm curious to hear how other homeowners handle their monthly budgets. 

So, homeowners, how much do you have left over at the end of the month after you pay ALL of your bills/life expenses. I'm talking, mortgage, taxes, student loans (if any), personal loans (if any), childcare (if any), groceries, heat/water/electricity/trash, car payments, TV/Internet, cell phones, home security, landscaping, transit to work costs (if any), parking fees, gas, savings allotment, emergency funds, etc. 

How much do you have leftover? Do you think it's enough? What do you think is the minimum you'd want to have leftover for discretionary expenses - money to pay for "pleasure" things like dinner out, clothes, movies, random home decor, etc. 

short+sassy

I suggest you check out the Money Matters (MM) board on this site.  It's one of the more active boards on The Nest and there is a lot of information about budgeting, emergency funds, saving money, home repairs, etc.  The ladies on it are all really nice, supportive, and a wealth of information.

I bought my house 4 years ago with a 20% down payment.  It was $81,000, but had a lot of deferred maintenance.  I've probably put another $35K-$40K in it over the last few years, though some of that is upgrades.  For example, I'm just putting the finishing touches on a large deck I built off the back of the house.

My mortgage payment is $730/month, which also includes property taxes and insurances.  The vast majority of loans for residential, owner occupied properties do include taxes and insurances in the mortgage payment.  Those are "escrow" accounts.  One of the bummers is you will typically need to bring enough money to closing to cover one year of each escrow account, ie property taxes and home owner's insurance.  Some banks require more, some less.

I happen to live in an area (New Orleans, LA) that has some of the HIGHEST insurance rates in the country.  Plus we have flood insurance on top of that.  For example, I'm guessing most home owner's policies are less than $1,000/year and some are just a few hundred.  But mine is over $3,000/year.  Plus flood is another $700/year on top of that.  But those are all costs to keep in mind when buying a home.  You can contact a local agent to get ballparks on property insurance.

Generally speaking, most of your expenses as a home owner will not be much more than what they are as a renter.  A big caveat to this is maintenance and repairs.  Definitely get an inspection after you get a house under contract.  I cannot stress that enough.  This will give you a good idea as to what are things that need to be repaired/replaced right away, within the next few years, etc.  Utilities also might be higher if the house you buy is a good bit bigger than your apartment.

But even with the best maintenance plan and due diligence, as a homeowner you are more likely to have to repair or replace something with no notice.  It's especially important to have an emergency fund set up for these situations.  There is a lot of discussion about e-funds on the MM board and there really is no "right" answer as to how much an e-fund should be.  I personally only keep a $1,000 e-fund, which is way on the low side compared to what most people recommend.  But I also have multiple streams of income plus a Home Equity Line of Credit (HELOC)...which is basically funds that are tied to my home's equity, but are available to me at a very low interest rate if I want to dip into them.  I also don't have any children.

I currently have about $3400 left over at the end of every month after I've paid everything.  I also have minimal credit card debt and no other loans except my mortgage, HELOC, and car.  Many of the women on the MM board are really diligent about tracking everything they spend and budgeting for everything, including eating out/entertainment/etc.  However, I personally choose not to do that.

I am not an extravagant person anyway and don't spend much outside my typical bills.  But, because of that and because I am comfortable with what I have left over every month, I don't pay much attention to discretionary expenses.  I go out to dinner where/when I want to.  Though I am a heavy Groupon user to get the most bang for my dinner buck.  I buy clothes/shoes when I need something, but my house is already overstuffed so I don't just shop for shopping's sake.

MommyLiberty5013

The first rule of finances is to pay yourself first. Meaning, you put money into your savings account and/or retirement before you pay all the bills.

Don't spend more than 30% of your gross (before tax) income on housing expenses, which include mortgage, home owner's insurance, property taxes, gas, water, sewer, trash, and electric. If you spend more than 30% you will be mortgage poor and that's no fun.

AprilZ81

Sharing dollar amounts won't do you a lot of good because everyone has a different comfort level with their finances.

I would strongly suggest that you buy a house you can afford on one income if you are married or a smaller fraction of your income if you are single.  Spending a lot on housing opens you up to risk if one of you loses a job or has a financial emergency where you need cash.

Also if you have (or plan) on having children take into account how much day care might be, increase health insurance costs or lost income if one of you decides to stay home.  You will want the ability to make your own decisions about life changing events instead of being forced into a decision because that is all you can afford.

Also keep in mind (assuming this is your first home) that even if the house is move in ready you will need curtains, ladders, hammers, lawncare equipment, and, and and, (you get the picture).  The first year of home ownership is EXPENSIVE as you furnish and decorate your house to your taste, even if you aren't starting from scratch.  Be sure to have a good emergency fund (don't use it to decorate) plus a few grand set aside for the fun part of owning a home.

JoanE2012

We made sure that when we bought our house we could afford all of our bills, including the mortgage, on one income.  God forbid one of us loses our job, we can still afford all of the bills without having to tap emergency savings.  And when we're both employed, we use the leftovers for various savings and traveling.

dutchgirl76

We got lucky and got a referral to a mortgage specialist who sat down with us, ran our credit (which does hurt you) and crunched numbers to make it more real. As PP's have said the taxes and insurance are the biggest killer. Check with your state to see how it's taken out monthly or if you have to pay once a year or quarterly etc. My insurance and taxes are taken out every month which is great I don't worry about having to pay later, but I don't think every state does that and I pay more each month up front. See if you can find someone to run the numbers with you, they should have a better idea of tax, insurance, average gas/electric rates in your area. Also be careful if you have added expenses like a water bill, trash pick up fee, Home Owners Association fees if you buy a condo or higher gas/electric rates if you move to a different town. Those things will quickly change your budget from your current renter's budget .

As PP's mentioned as well, be prepared to buy a lot of small and big stuff when you move in. Paint's expensive, an appliance could break right after you move in just by murphy's law, lawn mower/snow blower (if necessary), generator, all the important stuff to have to maintain the house and keep you going in an emergency. Even small stuff you don't think of like extra lamps for more rooms than your current apt., more curtains and a small guest bed etc.

I can't stress the savings account enough. Eventually you'll need to work on your roof, something will need to be fixed on the water heater and those things are expensive. If you're out of work, if something breaks in an emergency you have to have money to back it up. Mortgage companies don't care if you're out of work, they want their money. I believe the going rate for savings is 2 - 3 months of saving for all of your bills for such emergencies such as job loss or maternity leave.

Also get a home inspection period. I don't care what the market's like do it. It baffle me that the Government hasn't found a way to make that a legal requirement and charge you more to have it done, it's just too important. I have friends who didn't do an inspection and they paid for it a thousand times over as soon as they moved in to their house. Your realtor can recommend an inspector if you don't know one. Go to the inspection too, make sure you see what the true issues are for yourself.

Where do you stand with your car? Factor in a current car payment or a future one if you know a new car will be necessary in the next few years,. Are you making a lot of expensive updates to your car? Again these are all extra finances that have to be covered and factored into a budget.

Finally, DH and I try to put some extra money down on our principle balance each month. With the amount that we pay we can cover at least 1, almost 2 months "mortgage" (not taxes or insurance) payments a year. There's different schools of thought on how to pay ahead, I've heard even just paying your mortgage every 2 weeks on the dot makes and extra payment each year without putting anymore money down. In the long run even one less year of mortgage interest will help you so much. Only downside to this, at least with my mortgage company, is that I never get "ahead" on my payments as I do with my student loans, meaning if I needed to skip a month of student loans in an emergency I'd be OK because I paid ahead.

With that begin said, good luck. Home ownership is a scary but wonderful experience. The good news is you're thinking ahead and buying only what you can afford.

dutchgirl76

The other thing to be careful of to when looking at homes is the future updates. I put a great deal of blame on realtors and HGTV for this, everyone saying "oh it's just drywall, oh that's an easy fix" "oh I know a guy who can help you do that", it's easy for them to say because they're not paying for it. Keep  things in the back of your mind when you start house hunting: 

1. Your monthly savings, how much will you have to make necessary and cosmetic improvements down the road? 

2. How soon do these improvements need to be made? Will you need a new roof within 1 year? Will you have enough saved to get the new roof in 1 year? Can you have the sellers make the improvement before you move in?

3. Can you do the improvements yourself to save money? Or would you rather (if you can afford it) buy something a little more up to date and do less work, at least for the next 5 -10 years?

I should say that you'll never find a house that won't need improvements, newer homes might just buy you more time in between projects. These are all personal choices, but it's important to think about when you're caught up in house buying fever.

BlueBirdMB

AprilZ81 said:

Sharing dollar amounts won't do you a lot of good because everyone has a different comfort level with their finances.

I would strongly suggest that you buy a house you can afford on one income if you are married or a smaller fraction of your income if you are single.  Spending a lot on housing opens you up to risk if one of you loses a job or has a financial emergency where you need cash.

Also if you have (or plan) on having children take into account how much day care might be, increase health insurance costs or lost income if one of you decides to stay home.  You will want the ability to make your own decisions about life changing events instead of being forced into a decision because that is all you can afford.

Also keep in mind (assuming this is your first home) that even if the house is move in ready you will need curtains, ladders, hammers, lawncare equipment, and, and and, (you get the picture).  The first year of home ownership is EXPENSIVE as you furnish and decorate your house to your taste, even if you aren't starting from scratch.  Be sure to have a good emergency fund (don't use it to decorate) plus a few grand set aside for the fun part of owning a home.

All of this exactly!  I highly recommend buying a home you can afford on one income.  You never know what the future holds and this is a great way to avoid financial trouble in the future.  

I hear tons of renters say "I could be spending less on a mortgage than I do on rent".  They really believe that renting is more expensive than home ownership, which is absolutely untrue.  Homes take up a ton of money besides the mortgage and ownership ends up being more expensive than renting when you take into account taxes, insurance, and maintenance.  So be prepared for all that before diving in.