Tips for Creating a Budget for a New Home

budget for a new home

Eight tips to budget for a new home

For most people, buying a home is both exciting and terrifying. It’s a significant financial decision, and if you’re not careful, it can turn into a debt nightmare fast. If you’re planning on buying a new home in the next six to 12 months, it’s time to get your finances in order. Here, the budget experts at Money Tracker present a few tips to help you create a budget that can help you save money for a down payment on your first home.

1. Develop a budget

The first step for cutting your expenses is to develop a budget. Track your income and all your expenses for at least one to three months to get an idea of where your money’s going.

Once you can see where your money is going, you can make changes. You can simplify the process using a budgeting app or spreadsheet. Great options include Mint and The Budget Excel Spreadsheet.

Looking for a Personal Budget Coach? Get a FREE 30 Minute Consultation.

2. Cut out unnecessary expenses

After you have a clear idea of where your money’s going, it’s time to cut unnecessary expenses. It may surprise you how much money you’re wasting on eating out, entertainment, and shopping. Review your budget, and find areas where you can cut back.

Business owners often need to take other measures to reduce their spending. You may need to get creative with your deductions to lower your tax bill if you’re self-employed.

Switching your sole proprietorship to an LLC can also provide tax advantages. Each state has different requirements, so check out how to establish an LLC. A formation company can make the process quick and easy for you.

3. Create a debt reduction plan

If you have debt, it’s crucial to create a plan to pay it off. Start by making a list of your debts, including the interest rate, minimum payment, and balance. Then, prioritize your debts from most to least important. For example, focus on paying off high-interest debt first.

Once you have a plan, start making extra payments on your debts each month. Even an additional $50 can make a huge difference. Also, consider transferring your debt to a credit card with a lower interest rate remembering not to add any more charges to that card.

4. Build your credit score

Your credit score is one of the most critical factors in getting a mortgage. If you have a low credit score, focus on improving that score.  You can do a few things immediately to improve your credit score, including paying your bills on time, keeping your balances below 30 percent of the limits on the cards, not closing your old cards that provide a positive credit history, and using a credit monitoring service.

5. Save money for a down payment

You’ll also need to save money for a down payment on your new home. Factor into your budget that you want to have at least 20% of the purchase price. However, programs are available that allow you to put down as little as 3.5%, helpful if you can handle a higher monthly payment.

Check the requirements for FHA, USDA, and VA loans to see if you qualify. Also, see if there are any local incentives that can help you with your down payment.

6. Choose the right time

The housing market is fluid, which means that its conditions are constantly changing. Once you have the financing in place, be sure to check out the local market conditions where you are considering buying a home. You may find it’s best to wait a few months before buying.

7. Protect your investment

Once you are able to purchase your new home, protect it with a home warranty. You can ensure that your new home won’t become a money pit because these policies cover major systems and appliances, which means you won’t lose thousands of dollars and the functionality of your home if something breaks. In other words, an appliance warranty = peace of mind. Look into policy options to find one that best suits your home’s needs. Be sure to read the fine print to understand what is covered.

8. Manage debt to buy a new home

Initially, debt can be a significant barrier to homeownership. But by starting early with a budget, saving money, and changing your lifestyle, you can set yourself up for owning  a new home in a year. And if you’d like help establishing your budget and following through, reach out to Money Tracker for help! The website has great resources, and you can schedule a free consultation for personalized advice.

Looking for a Personal Budget Coach? Get a FREE 30 Minute Consultation.