How to Budget for a Home: Down Payment, Closing Costs and More

Most people can tell you the price of the house they want. Fewer have added up what it takes to buy it and live in it. If you want to know how to budget for a home, the answer is a bit bigger than the down payment: you are planning for cash at closing, a monthly payment that includes more than the loan, and a cushion for the things that go wrong after you move in. Here is how to build that plan step by step.

Before you look at homes, look at your own cash flow. The Consumer Financial Protection Bureau (CFPB) has free budgeting tools in its Your Money, Your Goals toolkit, including a cash flow budget, an income and benefits tracker and a bill calendar. Use them to see what comes in, what goes out, and what you can comfortably put toward housing.

The point of this step is to set your own number first. A lender can tell you what you may qualify for, but only you know what monthly payment leaves room for the rest of your life. I like buyers to arrive with that number already in mind. Then we compare it to what the loan would actually cost.

How do I budget for a home purchase?

Start with your own monthly cash flow, then add up the full monthly payment (principal, interest, taxes, insurance, any mortgage insurance and HOA fees) plus maintenance and utilities. Then plan the down payment, closing costs and an emergency cushion.

Are closing costs part of the down payment?

No. The CFPB describes closing costs as separate from your down payment. They include lender charges, third-party services such as the appraisal and title insurance, government fees and prepaid items.

How much should I keep in savings after I buy?

The CFPB describes an emergency cushion as usually three to six months' worth of expenses. Your own number depends on your job, your health, and how much you are comfortable with.

What is on a Loan Estimate?

It shows your projected payments, your closing costs and the estimated cash to close. Use it to compare offers from different lenders for the same type of loan.

Can someone help me build a home buying budget for free?

You can start with the CFPB's free budgeting tools, and I am happy to walk through your numbers with no pressure. HUD-approved housing counselors can also help, and the CFPB's Find a Counselor tool lists agencies near you.