How to Budget for Your First Home Purchase

Buying your first home is an exciting milestone, but it’s also one of the most significant financial decisions you’ll ever make. Proper budgeting is crucial to ensure the process goes smoothly and doesn’t lead to unnecessary financial strain. Without a clear plan, unexpected costs and overlooked expenses can quickly become overwhelming.

Many first-time buyers underestimate the true costs of homeownership, focusing solely on the price of the property. However, factors like upfront payments, ongoing expenses, and financial reserves all need to be accounted for. This article provides a step-by-step guide to help you create a realistic budget for your first home, ensuring you’re prepared for every aspect of the home-buying process.

Assessing Your Financial Situation

Before diving into the home-buying process, take a detailed look at your current financial situation. Start by reviewing your savings, monthly expenses, and income to determine how much you can afford to spend on a home. A good rule of thumb is to keep your monthly housing costs, including your mortgage, property taxes, and insurance, within 28% of your gross income.

An online mortgage payment calculator with interest rates can give you a fair idea of your monthly housing costs. This calculator helps you estimate your monthly mortgage payment based on the home price, loan term, and interest rate.

Be honest with yourself about your financial capabilities. Overextending your budget could lead to financial stress down the line. Having a clear understanding of your affordability will make the rest of the process much easier.

Understanding Upfront Costs

Many first-time buyers focus on the price of the home itself but forget about the significant upfront costs associated with purchasing a property. These costs go beyond the down payment and can add up quickly if not planned for in advance.

The down payment is typically the largest upfront expense, ranging from 3% to 20% of the home’s purchase price, depending on the type of loan you choose. Additionally, there are closing costs, which include fees for appraisals, title insurance, and loan origination. These can amount to 2% to 5% of the home’s price.

Other upfront expenses may include home inspections, moving costs, and initial repairs or updates to the property. To avoid surprises, research these costs ahead of time and save accordingly. A well-prepared budget will help you handle these initial expenses without dipping into your emergency fund or other savings.

Factoring in Monthly Expenses

Once you’ve considered the upfront costs, it’s essential to factor in the recurring monthly expenses that come with homeownership. These include mortgage payments, property taxes, homeowner’s insurance, and utilities.

Your monthly mortgage payment will likely be the largest expense. Property taxes and insurance are often bundled with your mortgage, but they can vary depending on the location and value of the home. Utilities, such as water, electricity, and gas, should also be included in your budget, along with maintenance costs for things like lawn care or minor repairs.

For homes in certain communities, you may need to pay homeowner’s association (HOA) fees, which cover shared amenities and maintenance in the neighborhood. These fees can range from $100 to several hundred dollars per month.

To stay on top of these expenses, allocate a portion of your income specifically for home-related costs. This approach helps you avoid financial strain while maintaining your property.

Building an Emergency Fund

Owning a home comes with unexpected costs, which makes having an emergency fund a critical part of your budgeting strategy. An emergency fund provides a financial safety net for unexpected repairs, such as fixing a leaky roof or replacing a broken water heater.

Aim to save at least three to six months’ worth of living expenses in your emergency fund. This fund should be separate from your savings for the home purchase. Building this reserve may take time, but it’s essential for long-term financial security.

Even if your home appears to be in perfect condition, unexpected issues can arise at any time. Having an emergency fund ensures you can handle these challenges without derailing your financial plans.

Exploring Loan Options

Understanding your loan options is an important step in budgeting for your first home. Mortgages come in different types, such as fixed-rate and adjustable-rate loans, each with its own benefits and drawbacks.

A fixed-rate mortgage provides stable monthly payments, making it easier to plan your finances over the long term. Adjustable-rate mortgages, on the other hand, may start with lower interest rates but can increase over time. A fixed-rate mortgage might be a safer option if you plan to stay in your home for a long period.

Take time to compare different lenders’ interest rates, terms, and fees. Pre-approval for a loan can also give you a clear idea of your borrowing power and help you shop confidently within your budget.

Prioritizing Wants vs. Needs

When buying your first home, it’s easy to get carried away by wish lists. However, distinguishing between what you need and what you want is essential to staying within your budget.

Start by identifying your must-haves, such as the number of bedrooms, proximity to work, or a good school district. Then, list the features that would be nice to have but aren’t deal-breakers, like a large backyard or a modern kitchen.

Seeking Professional Advice

Navigating the home-buying process can be overwhelming, especially for first-time buyers. Seeking guidance from professionals can help you make informed decisions and avoid costly mistakes.

A real estate agent can provide insights into the housing market and help you find homes within your budget. Mortgage brokers can assist in finding the best loan options and interest rates. Financial advisors can help you evaluate your budget and ensure you’re financially prepared for homeownership.

Working with experienced professionals gives you a support system and makes the process smoother and less stressful.

In conclusion, budgeting for your first home requires careful planning and a clear understanding of your financial situation. You can create a realistic budget that fits your needs by assessing your income and expenses, researching upfront and monthly costs, and exploring loan options.

Prioritizing essential features over extras helps you stay within your limits while building an emergency fund ensures you’re prepared for unexpected expenses. Seeking advice from professionals can provide valuable guidance and make the entire process less intimidating.

With a solid plan in place, you can confidently navigate the home-buying journey and make your first home purchase a rewarding and manageable experience.

This post may contain affiliate links. Financial Panther has partnered with AwardWallet and CardRatings for our coverage of credit card products. Financial Panther, AwardWallet, and CardRatings may receive a commission from card issuers. Some or all of the card offers that appear on the website are from advertisers. Compensation may impact on how and where card products appear on the site. The site does not include all card companies, or all available card offers. Opinions, reviews, analyses & recommendations are the author’s alone, and have not been reviewed, endorsed or approved by any of these entities.

More Recommended Ebike/Scooters

Check out these other ebikes and scooters I've reviewed:

Urban Arrow Ebike – Last year, I made one of the largest purchases I’ve ever made – I bought a $9,000 electric cargo bike from Urban Arrow. In my Urban Arrow review, I will discuss what it is and why I decided to buy this bike, as well as discuss how impactful a bike like this can be on your journey to financial independence.
Troxus Explorer Step-Thru Ebike – The Troxus Explorer Step-Thru is a fat-tire ebike that I’ve had the pleasure of riding for a while now. It has amazing power, great looks, and awesome range. If you’re looking for a great fat-tire ebike that offers a lot for the price, the Troxus Explorer Step-Thru is definitely one for you to consider. Check out my Troxus Explorer Step-Thru Review.
Hovsco HovBeta Ebike – The HovBeta is a folding ebike with great specs and a lot of interesting features, and importantly, it’s sold at a good price point. I’ve had a blast commuting with it and using it to do deliveries with DoorDash, Uber Eats, and Grubhub. Check out my Hovsco HovBeta Ebike Review.
Vanpowers Manidae Ebike – The Vanpowers Manidae is a fat tire ebike that I’ve been riding as my primary winter commuting bike and have also been using it to do food delivery with apps like DoorDash, Uber Eats, and Grubhub. After clocking in a decent number of miles with this ebike, I wanted to write a post sharing what my experience with the Vanpowers Manidae ebike has been like. Check out my Vanpowers Manidae Review.
Sohamo S3 Step-Thru Folding EBike Review – A Great Value Folding Ebike – The Sohamo S3 Step-Thru Folding Ebike is an entry-level folding ebike that offers a lot of value for the price point. I’ve been riding the Sohamo S3 for a while now, putting the bike through its paces, and I have to say, this bike has exceeded all of my expectations. Check out my Sohamo Review.
KBO Flip Ebike – The KBO Flip is an excellent bike. I’ve had a great time riding it and think it’s a versatile bike that can be used for a lot of purposes and can fit a variety of lifestyles. It’s worked out great for me as a general commuter bike and as a food delivery bike. Check out my KBO Flip Review.
Hiboy P7 Commuter Ebike – The Hiboy P7 is an excellent electric commuter bike that’s offered at an affordable price point. The range and speed of this bike are both very good, so you won’t have any trouble getting anywhere you need to go with it. As a food delivery vehicle, this is also good – with how much range it offers, you’ll be able to work all day on a single charge. Check out my Hiboy P7 Commuter Electric Bike Review.
Himiway Escape Ebike – The Himiway Escape is an interesting bike for anyone looking for a moped-style ebike. If you’re a gig economy worker, the Himiway Escape is particularly interesting and it’s possible to think of it as an investment, especially if you can opt to do deliveries with the Himiway versus using a car. It’s not cheap, but you can definitely make your money back when you compare the mileage you’ll put on your car versus using an ebike. Check out my Himiway Escape Bike Review.
Espin Sport Ebike – The Espin Sport is a good ebike for someone who is looking for an ebike that feels and rides more like a regular bike. There are many ebikes that are really only bikes in name. In reality, they’re basically electric mopeds. The Espin Sport, by contrast, is a bike you could probably ride without the battery and you’d feel like you’re just riding a regular bike. Check out my Espin Sport Review.
Varla Eagle One Scooter – The Varla Eagle One is an excellent scooter that can make sense for a lot of people. It can work as a primary mode of transportation. You can use it to work on gig economy apps like DoorDash, Uber Eats, and Grubhub. And it can also be a recreational vehicle if you’d prefer to use it for that. Check out my Varla Eagle One Review.
Varla Falcon Scooter – The Varla Falcon is an excellent scooter that offers a good amount of power at a lower price point compared to more powerful scooters. It’s not exactly an entry-level scooter, nor is it a high-powered scooter. I think it fits somewhere in-between those two categories – an intermediate scooter if I had to give it a category. Check out my Varla Falcon Review.
Hiboy S2 Scooter – The Hiboy S2 is an excellent entry-level commuter scooter that's perfect for someone looking to save some money in transportation costs and improve their commute. Check out my Hiboy S2 Review.
Hiboy S2R Scooter – The Hiboy S2R is one of the more interesting electric scooters I’ve been able to test out. It’s not a high-powered scooter, but for an everyday transport option, it’s very useful, especially given some of the unique features that it has. Indeed, for the price, the Hiboy S2R might be the best value scooter I’ve used. Check out my Hiboy S2R Review.
Fucare H3 Scooter – The Fucare H3 is a fun scooter and I’ve enjoyed testing it out. For a daily commuter or quick trips or errands, the Fucare H3 is probably the scooter I’ll use. It’s portable and easy to maneuver, so it’s just easier to take on the road when I need it. Check out my Fucare H3 Scooter Review.

More Recommended Investing App Bonuses

For additional investing app bonuses, be sure to check out the ones below:

M1 Finance ($100) – This is a great robo-advisor that has no fees and allows you to create a customized portfolio based on your risk tolerance. You also get $100 for opening an account. Check out my M1 Finance Referral Bonus – Step-By-Step Guide.
SoFi Invest ($25) – SoFi Invest is an easy brokerage account bonus that you can earn with just a few minutes of work. Use my SoFi Invest referral link, fund your SoFi Invest brokerage account with just $10 and you’ll get $25 of free stock. I also have a step-by-step guide for the SoFi Invest referral bonus.
Webull (20 free stock shares) – Webull's current promotion gives you 20 free shares valued between $3-$3,000 each if you open an account using my referral link. Here’s a guide I wrote about how to earn your free shares using Webull.
Moomoo (15 free stocks) – Moomoo is a free investing app currently offering 2 different referral bonuses if you open an account using a referral link. Read my Moomoo referral bonus guide for more information.
Robinhood (1 free stock) – Robinhood gives you a free stock valued between $2.50-$225 if you open an account using my referral link.
Public (1 free stock) - Public gives you a free stock valued between $3-$70 if you open an account using my referral link.

More Recommended Bank Account Bonuses

If you’re looking for more easy bank bonuses, check out the below options. These bonuses are all easy to earn and have no fees or minimum balance requirements to worry about.

Upgrade ($200) – Upgrade is a free checking account that’s currently offering a $200 referral bonus if you open an account and complete a direct deposit. These bonus terms are easy to meet, so it’s well worth doing this bonus as soon as you can. Here’s a post I wrote with more details: Upgrade $200 Referral Bonus – Step By Step Directions.
Ally Bank ($100) – Of all the banks out there, Ally is, without a doubt, my favorite. At the moment, Ally is offering $100 to customers who open an eligible Ally account and meet the requirements. Here are the step-by-step directions to earn your Ally Bank referral bonus.
Fairwinds Credit Union ($175) – Fairwinds Credit Union is offering a referral bonus for users that sign up using a referral link. Fairwinds has no fees or minimum balance, so this is a particularly easy bonus to earn. Since this is a smaller credit union, my gut instinct tells me this offer won’t be around long, so if you’re in a position to meet the bonus requirements, grab this bonus before it’s gone. Here is my step-by-step guide on how to earn your Fairwinds Credit Union bonus.
Chime ($100) - Chime is a free bank account that offers a referral bonus if you use a referral link and complete a direct deposit of $200 or more. In practice, any ACH transfer into this account triggers the bonus. This bonus is easy to earn and posts instantly, so you’ll know if you met the requirements as soon as you move money into the account. I wrote a step-by-step guide on how to earn your Chime referral bonus that I recommend you check out.
US Bank Business ($900) – This is a fairly easy bank bonus to earn, since there are no direct deposit requirements. In addition, you can open the Silver Business Checking account, which comes with no monthly fees. Check out how to earn this big bonus here.
GO2Bank ($50) - GO2Bank is an easy bank bonus that I recommend people take advantage of if they have an easy way of meeting the direct deposit requirement. I like that it’s easy to open the account and that the bonus pays out quickly. Check out my step-by-step guide on how to earn your GO2Bank $50 referral bonus.
Current ($50) – Current is a free fintech bank that’s offering new users a $50 referral bonus after signing up for an account using a referral link. Current is an easy bonus to earn and also gives you access to three savings accounts that pay you 4% interest on up to $2,000. That means you can put away up to $6,000 earning 4% interest. That’s very good and makes Current an account I recommend to everyone. Check out my step-by-step guide on how to earn your Current Bank bonus.
Novo Bank ($40) - Novo bank is a free business checking account that’s currently offering a $40 bonus if you open a Novo business checking account using a referral link. In addition to being a good bank bonus, Novo is also a good business checking account. It has no monthly fees or minimum balance requirements and operates a good app and website. Indeed, it’s the business checking account I currently use for this blog. Check out my post on how to easily open a Novo account.
Varo ($25) – Varo is a free fintech banking app similar to Chime or Current. It’s currently offering a $25 bonus to new users that open a new Varo account with a referral link. The bonus for this bank is very easy to meet, all you need to do is spend $20 within 30 days of opening your Varo account. Check out my step-by-step guide to learn how to earn this bonus.

Kevin is an attorney and the blogger behind Financial Panther, a blog about personal finance, travel hacking, and side hustling using the gig economy. He paid off $87,000 worth of student loans in just 2.5 years by choosing not to live like a big shot lawyer.

Kevin is passionate about earning money using the gig economy and you can see all the ways he makes extra income every month in his side hustle reports.

Kevin is also big on using the latest fintech apps to improve his finances. Some of Kevin's favorite fintech apps include:

SoFi Money. A really good checking account with absolutely no fees. You'll get a $25 referral bonus if you open a SoFi Money account with a referral link, and an additional $300 if you complete a direct deposit.
5% Savings Accounts. I'm currently getting 5.24% interest on my savings through a company called Raisin. Opening a Raisin account takes minutes to complete, it's free, and all of your funds are FDIC-insured. I explain how it works, why I'm now using it to store my emergency fund and any other cash savings I have, and why I recommend everyone check it out in this review.
US Bank Business. US Bank is currently offering new business customers a $900 signup bonus after opening a new account and meeting certain requirements.
M1 Finance. This is a great robo-advisor that has no fees and allows you to create a customized portfolio based on your risk tolerance. You also get $100 for opening an account.
Empower. One of best free apps you can use to monitor your portfolio and track your net worth. This is one of the apps I use to track my financial accounts.

Feel free to send Kevin a message here.