How to Set a Budget for Your First House

Buying a home is an exciting milestone, and you should feel proud about taking this first step. However, before you start the homebuying process, it’s a good idea to set a budget for your home. What you want to buy vs. what you can reasonably afford are often two different things.

Unfortunately, many Aussies find themselves struggling to keep up with home payments, especially after their first home. Unlike renting, you also need to keep in mind payments for repairs, utilities, and all of the extras that sneak up on you. In this guide, we’ll share how to set a budget for your first house that you can afford.

Understanding the Cost of a Home

Buying a home is often the biggest purchase you’ll ever make in your life. While you might buy another home down the line, this will be your first experience in the world of home ownership. If you’ve spent your entire life living with family or renting, you might not recognise the true cost of home ownership.

While most first-time homeowners think about their mortgage payment, this is only one side of the story. In reality, owning a home comes with a lot of unexpected costs. These can add greatly to your monthly budget, and they can even leave you unable to make ends meet. Before you set a budget for your first house, consider these extra costs. 

  • Legal fees: The mortgage is only one aspect of the upfront fees needed to buy a home. You’ll also need to factor in a mortgage establishment fee, valuation fee, transfer fee, registration fee, and taxes.
  • Upkeep: Additionally, even if you buy a new home, there is still the matter of upkeep and maintenance. It’s generally considered smart to put aside 1-2% of your property value per year just for keeping your home in good repair.
  • Home insurance: As a homeowner, you also need home insurance. This costs around $2,116 per year, on average. Some mortgages also have ongoing fees as well.
  • Taxes: Lastly, you also need to remember federal, state and local government taxes and rates.


As you might expect, these costs really add up. One of the pros of renting is not having to worry about taxes, fees, upkeep, and costly insurance. However, there are still many excellent advantages to owning a home, like building equity in your property and investing in your future.

Factoring a Home Into Your Budget

Now that you understand the real cost of owning a home, let’s talk about how to factor these costs into your budget. In the world of homeownership, there’s something known as the 28% rule. This is the idea that your monthly mortgage payment shouldn’t be more than 28% of your gross monthly income.

For example, if your family makes $8,000 a month, you will want your mortgage to be under or around $2,240 monthly. The 28% rule leaves space for affording unexpected repairs, insurance, taxes, and extra fees. Mortgage lenders always look at your credit rating as well as your debt-to-income ratio, so staying within this range is a good idea.

You’ll also need to keep in mind how much you wish to put down for your deposit. While 20% is the recommendation, this isn’t always possible. With home prices on the rise, you might not be able to afford a large down payment and that’s okay. Depending on your lender, you will likely still need to put down between 5-10% to qualify, depending on the loan terms.

Budget Tips for Your First House

Lastly, home buying can be a tricky process, especially if you don’t have a lot of experience. As most first-time homeowners know, this can be an emotional rollercoaster. Keep these tips in mind to make sure you buy something you love (that you can also afford):

  • Take your time: In busy markets, there’s definitely a frenzied feeling that you have to move quickly. Instead, take your time. Wait for the right opportunity for you, not necessarily the first opportunity.
  • Save early: Creating a savings plan and starting as early as possible is the best way to prepare for your down payment. Determine how much you need to save monthly to meet your goal.
  • Emergency fund: Having an emergency fund is for everyone, but it’s a must for home owners. Making sure you have money set aside for repairs will prevent you from falling into any extra debt.
  • Agent: Work with a trusted real estate agent who can walk you through the steps in this challenging process.
  • Mortgage research: Lastly, research different options when it comes to your mortgage terms, loan type, etc.

Are You Ready to Buy a Home?

Buying your first house is both intimidating and exciting. This is a new chapter in your life, so make sure you start your home search with your budget in mind. Not only will you thank yourself in the future, but you’ll find something you can afford for years to come.

Are you worried about your budget for your first house? Debt Busters are here to help. Contact our expert team today on 1300 368 322 to review your unique situation and put your best foot forward.

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