Budgeting for Your First Home: A Practical Guide

Embark on your first home buying journey with our guide, focusing on budgeting, understanding hidden costs, credit score enhancement, and mortgage selection.


Investing in your first home is an exciting milestone. However, it also comes with significant financial considerations. Having discussed the importance of year-end budget reviews in “Year-End Budget Review: What Worked and What Didn’t”, it’s equally crucial to develop a budget plan when you’re planning to buy a house. This article provides a practical guide on budgeting for your first home, ensuring you make an informed decision that complements your financial goals.

Understanding the True Cost of Homeownership

Homeownership isn’t just about mortgage payments; it involves several other costs. These include the down payment, closing costs, home insurance, property taxes, and maintenance. Before you start house hunting, ensure you understand these costs to avoid financial stress later on.

Setting a Realistic Budget

Consider the below steps when preparing a realistic budget for your household:

  1. Assess Your Financial Health:

    Take a close look at your income, expenses, savings, and debts. The general rule of thumb is that your monthly home expenses should not exceed 30% of your gross income.

  2. Determine What You Can Afford:

    Use online calculators to estimate your potential mortgage payments. Remember to include other costs like insurance and property taxes.

  3. Save for Down Payment:

    Most lenders require a down payment of at least 20% of the home’s price. The larger the down payment, the lower your monthly mortgage payments.

  4. Account for Closing Costs:

    Closing costs typically range from 2% to 5% of the loan amount. These include fees for the home inspection, appraisal, and legal costs.

  5. Plan for Home Maintenance and Emergency Costs:

    A general rule is to budget 1% to 2% of the home’s value annually for maintenance and repairs. Also, it’s essential to have an emergency fund to cover unexpected costs.

Improving Your Credit Score

Your credit score plays a significant role in determining your mortgage interest rates. Higher scores generally mean lower interest rates. Before applying for a mortgage, check your credit report and correct any inaccuracies. Pay your bills on time, reduce your debt, and avoid opening new credit accounts to improve your credit score.

Choosing the Right Mortgage

Mortgages come in different types, each with its own pros and cons. The two main types are fixed-rate and adjustable-rate mortgages. Fixed-rate mortgages have the same interest rate for the life of the loan, while adjustable-rate mortgages have interest rates that change over time. Do your research, and consider seeking advice from a mortgage advisor to understand what’s best for you.


Purchasing your first home is a rewarding yet complex process that requires substantial financial planning and understanding. By comprehensively analysing your finances, creating a realistic budget, improving your credit score, and thoughtfully choosing your mortgage type, you can make a confident and informed decision. Remember, homeownership isn’t just a purchase; it’s a significant step towards long-term financial stability and independence. With diligent planning and budgeting, your dream of owning a home is entirely within reach. Here’s to your successful journey toward homeownership!


The information provided in this article is intended for general information and educational purposes only. It does not constitute financial advice. This article does not take into account your individual objectives, financial situation, or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice, including but not limited to, personal financial advice, taxation, and legal advice. Before making any decision based on this information, you should assess its relevance to your individual circumstances. We recommend seeking advice from a licensed financial advisor in Australia before making any financial decisions.