For first-time homebuyers, 2023 has proven to be a good year for frugal measures and looking for ways to make buying a first home more affordable. With mortgage rates going down and the average cost of houses in the USA declining for the seventh straight month by January of this year, 2023 is working in favor of first-time homeowners. Owning your own home is a dream for so many, but it doesn’t have to be out of reach. Fortunately, together with the lowering mortgage rates and the decline in the average cost of homes in the USA, there are ways to reduce the cost of purchasing a home.

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Tips for budgeting before buying

Setting a solid household budget will put you on the path toward buying your first home. Going for that dream house may be tempting, but if the cost of living in it is even a little beyond your comfort zone, your financial situation could get uncomfortable quickly. Fortunately, setting and holding to a household budget isn’t too hard. That said, there are some things to consider when creating a budget for buying your first home.

Understanding your budget. Determining a household budget, especially when buying your first home, isn’t simply a matter of generating a random number based on your income. Many people don’t realize that their personal debts can impact their ability to purchase a home and cover the costs associated with moving or maintaining the home. So, when you are trying to determine a household budget for buying a home, you will need to thoroughly understand your exact financial position, including your debts and other financial commitments.

The amounts you pay for utilities and other household costs – such as groceries and gas – don’t count as debts. A mortgage lender will want to look at debts like credit cards, payday loans, vehicle payments, and so on, so you will need to consider those things when determining a budget for buying a home. Your ability to buy your first home depends on the total amount of your income and what is left of that income after those pesky monthly payments are made.

Another thing you will need to consider is exactly how much house you need. If you are part of a family of five, you will likely need a home with at least two or three bedrooms. If you are expecting your first child, a two-bedroom condo will work. Remember: extra rooms and features mean additional costs. So, while you may want that 800K house, buying the 400K home may mean you can still live comfortably and within your means.

Finding the right property. Part of buying your first home – or buying a home at any point, for that matter – involves finding the right home for your needs. Unfortunately, there is such a thing as too much home, whether it’s physically or financially too big for you. It’s a good idea to start your search by creating a list of what your home needs, such as an appropriate number of bedrooms, a yard, a garage, and so on.  Next, consider your desired location, whether it’s across the country or the next street over. These things are important parts of finding your new home and fit right alongside setting a budget for the purchase. Additionally, the location of your intended home will impact the housing price. Working with a real estate agent is a good idea since they are trained to help you find the best property that suits your needs and budget. If you’re handy, you can save on the purchase price by buying a fixer-upper.

Financing options. Securing financing for buying a home isn’t just about getting a mortgage – not for first-time homebuyers, anyway. First-time homebuyers can often take advantage of the following sources of financial assistance:

  • Down payment assistance programs

As the name suggests, a down payment assistance program is designed to help first-time home buyers come up with their downpayment. This can come in the form of loans, vouchers, or grants and may be offered through government or non-profit organizations. The benefits of using down payment assistance programs are that they can speed up the buying process by making you save less and increase your understanding of the buying process through mandatory courses or workshops. Programs like the Good Neighbor Next Door make it easier for public servants to find a home closer to their workplace. The risks involved in using down payment assistance programs are that there may be restrictions concerning how soon you can sell your house after buying, and it may lengthen the amount of time it takes to close the sale.

  • First-time homebuyer programs

First-time homebuyers can qualify for programs that help with the cost of buying their home through lower interest rates, tax credits, flexible qualification requirements, or even deferred loans designed to provide for closing costs. These programs are offered through the government, with federal, state, and local governments having their own programs.   

  • Tax incentives and deductions for homeowners

The US government, as well as state and local governments, have a number of tax incentives for first-time homebuyers. For example, people with IRAs – Individual Retirement Accounts – can withdraw as much as $10,000 from their account without having to fork over the 10% penalty. Those belonging to lower-income families can use the Mortgage Credit Certification Program, which provides a credit that helps reduce the amount of taxes owed to the federal government.

Tips for budgeting before the move

Moving into a new home can be a significant expense, even if you only plan to rent a truck and get some friends to help you. Moving costs have a way of creeping upward if you aren’t careful. A few good moving tips involve planning ahead, taking an inventory of your belongings, and inspecting your new home.

Plan ahead. First, decide if you want to pay a company to pack and/or move your home or rent a truck and do the work yourself. Naturally, paying a moving company will cost substantially more than making it a DIY move. If this is the option you want to choose, a little due diligence is a good idea. Look online for local moving companies or companies that will travel as far as you need them to. Browse their website for their rates, customer reviews, what types of moving services they offer, and so on. Many moving companies have forms online for free quotes to give you an approximate idea of the cost. In this case, you will need to know exactly what you own.

Take inventory. While packing up your home is an excellent time to get rid of things you no longer need, it’s a good idea to inventory your belongings – at least those you plan to keep. Most moving companies require a basic inventory of furniture and boxes to provide a quote so they know the required work level and approximately how many labor hours are needed. The inventory is also a good safeguard against theft: if you know exactly what you have, you can identify a potential theft if something doesn’t make it to the new home.

Inspect your new home. You may find that your current furniture doesn’t all fit in your new home. By inspecting your home, you can plan how best to arrange your furniture, as well as decide which pieces might not make the move. It’s also helpful to label each room in the new home and then put matching labels on the boxes and furniture that will go in each room. That way, you won’t have to spend too much time supervising the move and can help as needed. You may also want an actual home inspection done – hire a home inspector to look for potential damage or other areas of concern. An inspection will inform you about issues, like gas leaks or mold, that may become costly.

Budget for other expenses: Having a new home means decorating it to make it your own. Don’t forget to budget for these expanses before buying your home. Luckily, you can decorate and furniture your home on a budget without sacrificing style. Start by exploring inspiring home decor ideas that emphasize affordable DIY projects, repurposing furniture, and adding simple updates like fresh paint or new throw pillows. Thrift stores and online marketplaces are excellent places to find budget-friendly pieces.

Tips for budgeting after the move

The budgeting process doesn’t stop after you’ve moved in since drawing a household budget and being frugal will help you thrive in your new home. After the expense of buying a home and moving into it, you’ll need to figure out a budget that will allow you to pay all the costs associated with your home without paying out more than you need to. After all, a house is not really a home if you can’t live comfortably in it. Fortunately, there are some things you can do to better manage your expenses, including protecting your investment, managing your bills, extra costs, and home ownership expenses.

Protect your investment. A home is an investment, whether you are talking about the structure you live in or the mortgage used to pay for it — and you want to protect your investments. The home you buy consists of a series of parts, like the electrical system, the plumbing, the HVAC system, the kitchen, the laundry appliances, the roofing structure, and so on. These parts naturally require regular maintenance, so they don’t break down and cost you a bundle. If you’re handy, some of the structural maintenance can be made into DIY projects to save a bit of money. When it comes to servicing appliances or repairing the plumbing, electrical system, or roof, it’s best to call in a professional. Fortunately, regular maintenance inspections are nowhere near as expensive as repairs or replacements.

There is a tool to help offset the cost of maintaining your home: the home warranty. Home warranties are designed to provide financial coverage for necessary repairs and replacements. They are similar to home insurance in how they work, except that they are expressly used to assist with the cost of maintaining and repairing the various components of your home. By conducting regular maintenance, you can avoid more costly repair projects.

Likewise, your mortgage will also need to be protected. After all, keeping up with the mortgage keeps you in your home. So, do what you can to ensure it is paid each month on time to keep it in good standing. The mortgage is the most important financial commitment in your home, but keeping your cost of living low and your utility costs up to date will ensure you have heat in the colder months and working electricity.

Manage your bills and extra costs. Paying bills is part of being a homeowner. As a homeowner, you have more influence over your home environment, so you can take steps to lower the cost of your utility bills.

Here are five things you can do to help lower the cost of your utilities:

  1. Turn it off. When you leave a room, make sure the lights get turned off. You can also turn off things like fans, stereos, and extra items that don’t need to be constantly on. This may seem small, but appliances and lights that are on when they don’t need to be will add to your electrical bill.
  2. Lower your thermostat. If you aren’t in it, there’s little point in heating a home. When you leave for the day, consider lowering your thermostat. You can even invest in an automated thermostat with a built-in timer, so you don’t have to remember to lower it.
  3. Don’t leave the water running. Many people like leaving faucets running while shaving, brushing their teeth, or doing the dishes. Consider using a sink full of water to do the dishes or running the tap for a quick burst when brushing your teeth. If your faucets or pipes are leaky, you can save money in the long run by fixing the leak.
  4. Laptops, not desktops. Laptops do need to be plugged in to charge their battery, but they are more energy efficient than desktops. This is simply because desktops need to be plugged in at all times, while laptop batteries usually enjoy a long life that allows you to work cord-free. Also, desktop systems require multiple components to be plugged in, while laptops only have one.
  5. Maintain your furnace. By keeping your furnace vents and filters clean, you increase its energy efficiency. You can also have it serviced regularly to ensure it performs at peak effectiveness.

In addition to taking the above steps, consider investing in energy-efficient appliances to keep your home running well without spending more than you need to.

Manage homeownership expenses. When you’re drafting a household budget after the move, it’s a good idea to set evidence-based limits on each expense. For example, if you know that your gas bill is not likely to exceed a certain threshold, you can use that threshold number as a maximum spending amount for that utility. Sometimes, homeownership involves cutting back on your spending – not only for the sake of saving money for the purchase and the cost of moving but also to pad your bank account so that unexpected expenses don’t caught you off guard.

The 50/30/20 plan is a popular model for budgeting your expenses. Here is what it entails:

  • 50, or Needs. This model applies 50 percent of your budget to your needs. This includes living expenses, food, pet costs, transportation costs, childcare, and so on.
  • 30, or Wants. Thirty percent of this budget goes toward your wants. This includes things you want to buy, entertainment, hobbies, vacations, etc.
  • 20, or Financial Goals. Twenty percent of this budget goes toward your financial goals, acting as a savings prompt for you. The money you allocate for your financial goals can go toward paying off credit debt, saving toward retirement, or being put into investments.

Some people also like the idea of setting aside a certain percentage of their paycheck for an emergency fund. That way, if an unexpected expense arises – such as medical bills or car repairs – a financial cushion is in place.

Naturally, your income and your expenses will fluctuate. So, it’s a good idea to revisit your household budget occasionally to see if it still works for you.

Final thoughts

The cost of buying your first home, moving into it, and then surviving the increasing cost of living can get ahead of you if you aren’t careful. Drafting a household budget for each phase of your home ownership adventure will put you in good shape for keeping on top of your finances. By following the tips and tricks listed above, you can have a level head in a stressful time and money in your account.