Retirement, Investments, & Insurance for Individuals Build your knowledge Ready to buy a house? Create a budget for the expenses you'll have.

Ready to buy a house? Create a budget for the expenses you'll have.

Budgeting for a home includes more than just a mortgage payment. What expenses should you plan for?

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3 min read |

About two-thirds of all Americans own their homes. That’s a lot of people who’ve figured out not just how many bedrooms they wanted, but how many bedrooms they could afford.

What should you include in your budget plan to buy a house? Use this guide to help you set (and stay within) it.

1. The interest rate you pay

The guideline: Keep it as low as possible. Even a small change in interest rates can change what a home loan “costs” every month.

One way to keep your interest rate lower is to have a higher credit score—you’re considered “less risky” to pay back a lender.

"Although rates are continuing to rise, now still may be a good time to buy a home. Rates are forecasted to continue to rise, so you'd potentially be locking in a lower rate than what’s expected in the future. says Stanley Poorman, a financial professional with Principal®. “If rates then fall, you could refinance and take advantage of the lower rates."

Interest rate comparison

Loan Interest rate Monthly payment (principal & interest) Total interest paid
$250,000 house, (30-year fixed rate loan, 20% down) 6.5% $1,264 $255,190
7% $1,331 $279,520
7.5% $1,398 $303,858

Assumptions: 20% down payment, 30-year fixed rate loan, monthly payment only assumes principal and interest, taxes and insurance depend on your location and influence your payment amount substantially.

For illustrative purposes only.

2. Your down payment on a house

The guideline: It depends.

The standard recommendation is to put down 20% of your home price. This may help you dodge paying private mortgage insurance (PMI), which can add 0.5-1% to your loan (see chart, below). But putting 20% down isn't right for everyone.

“Twenty percent is a lot of money and might be out of reach for some people,” Poorman says. “And you don’t want to deplete your cash reserves to achieve a certain down payment just to avoid PMI. It’s a balance to strike.”

Down payment comparison

Loan No. 1 Loan No. 2 Loan No. 3
Home price $250,000 $250,000 $250,000
Down payment 5% 10% 20%
Loan total $237,500 $225,000 $200,000
Interest rate 7.25% 7.25% 7.25%
Monthly PMI (1%) $228 $146 $0
Monthly payment (principal, interest plus PMI) $1,848 $1,681 $1,364

For illustrative purposes only.

Assumptions: 30-year fixed rate loan, monthly payment only assumes principal and interest and PMI (if applicable), taxes and insurance depend on your location and influence your payment amount substantially.

No matter how much you put down, your monthly payments help build your equity in what’s likely to be the biggest asset you have in your lifetime.

“Home ownership is one of the ways you may build wealth,” Poorman says. “Your home should appreciate and build value for you.”

3. The monthly payment on your mortgage

The guideline: Don’t spend more than 28-30% of your income for your monthly payment. Meaning, about 26% of your monthly payment could be your mortgage, and another 2% is for PMI, taxes, and insurance. (Include costs such as an origination fee and title work in your mortgage, if applicable.)

Poorman considers spending no more than one-third of your income for your monthly payment to be a healthy budget, potentially enabling you to meet other financial goals.

“If you’re currently renting and comfortable with your budget and find a mortgage that’s at or below what you pay in rent, that’s a good comparison,” Poorman says. “If you’re considering a certain price point that will change your housing cost, practice the payment for a couple months to ensure it fits within your lifestyle.”

4. Home maintenance and fees

The guideline: 1-2% of your home’s value for maintenance (separate from emergency savings) and homeowner’s association (HOA) fees, if applicable.

From a roof leak to new cabinet hardware, most home repairs and upgrades land on you. “Most people don’t plan for maintenance costs when they budget for a home,” Poorman says. Set aside money for maintenance in a separate savings account, if possible.

Some buyers purchase home warranties to help guard against unexpected maintenance in the first year or two of ownership. And always get an inspection, even if you can’t include it as part of the purchase contingency. “It helps you learn what to watch for, like how old the roof is,” Poorman says. “It’s typically just a few hundred dollars, and so many good things can come from an inspection.”

5. Insurance expenses

The guideline: Varies; bundling with other insurance can sometimes cut costs.

If you don’t have it, think about life insurance (and disability) along with homeowners' insurance. All three may help protect your home, in different ways. The first two are in case you can’t work or be there for your family; the latter guards against unforeseen accidents or disasters.

Other things to consider

Imagine your life today, and in the near- and long-term, too. Is your job stable, or will you relocate (or switch careers) soon? Will your family grow, or will kids move out in a few years?

All those near-term changes can affect your financial planning not just for your house, but for your future.

What's next?

Are you saving enough to accomplish all your retirement goals? Log in to to find out. Don’t have an employer-sponsored retirement account or want to save even more? We can help you set up your retirement savings with an individual retirement account (IRA).