Creating a Monthly Homeowner's Budget

Monthly Budget Magnifying glass

Establishing a monthly budget and finding out how much you can afford is essential for first-time home buyers. When you plan, you need to take a step back and think about all of the money you spend in a month, and make sure all money in and out is accounted for. Think like an accountant; you may be surprised to find little daily habits are costing you hundreds of dollars per month.

If you learned how to use spreadsheets, this is the perfect opportunity to use them!

Finding What You're Already Spending

Finding what you're already spending can be done many different ways. Some ways are easier and faster than others, but for the most part, they'll all give you similar answers. Here are some options for you:

  • Get your transaction records via online banking — All of the major banks in Canada have online banking systems. If you log in, you can pull your full transaction record for the previous few months. It's a good idea to pull as much information as you can, especially from all of your credit cards, bank accounts, etc'.
  • Find bank statements with history of transactions — If you're still using paper bank statements, try to find the previous two or three months worth of statements. The same with your credit card statements.
  • Receipts — If you can't find your transaction records, receipts will do. But be warned: This method is less accurate and is likely going to take you significantly longer.

Once you've got a history of your spending, separate and group all of your transactions together by month and by type of expense.


Monthly Spending

Type of expense June 2011 July 2011 Aug. 2011 Average
Monthly Rent $1,000 $1,000 $1,000 $1,000
Student Loans $500 $500 $500 $500
Car Payments $900 $900 $900 $900
Fuel Purchases $150 $200 $145 $165
Groceries $350 $200 $300 $283
Eating Out $100 $200 $145 $148
Clothing $150 $20 $10 $60
Merchandise $100 $200 $145 $148
Totals: $3,250 $3,220 $3,145 $3,205

By breaking down your monthly spending, you start to see patterns. In the example above, about $296 is being spent per month on eating out and various merchandise. We can also see that the car payments are a significant amount each month. If you're tight on money and you're looking to buy a first home, you might plan to eat out less and to buy less merchandise. You might even consider getting rid of the car and buying a less expensive one.

Monthly Budget Considerations For Owning a Home

When you set out to buy your home, you're going to need a little bit of money to start. There will be some out of pocket expenses. Once you've settled in, you will also have some new, recurring expenses.

Property tax is one of these. You can find last year's property tax on an MLS listing for a home you are considering. Divide this number by 12 and add it to your monthly expenditures. If tax last year was, for example, $1,940, you can add roughly $160 to your monthly budget.

You may also request that your realtor obtain for you the monthly bills that were being paid at the property in the months previous to your visit. You will have to budget for homeowner's insurance, gas, electrical, waste, sewage and in a growing number of places, water.

Repairs and fix-ups must also be considered. On average, a home will require a one per cent investment of its value every year into general upkeep and maintenance. Upon move-in of a previously dwelt-in home, you can most likely add about a one per cent sum of the value that will go to items such as: paint, new valves, new casings, eavestroughs, carpet cleaning, new counter tops, new laminate, basement development, new windows, window cleaning, fireplace cleaning, new furnace filters, window treatments, landscaping, etc.

Fix-ups that seem expensive now can recover more than their cost in time. These include replacing old drafty windows, painting trims, repairing/patching cracks on the exterior, installing a furnace humidifier, insulating the basement, and other items that cut down on heating bills.

The enlisting of a real estate agent and mortgage broker will be incorporated into the selling price of the home and the mortgage respectively, so these will not be out of pocket expenses. The fee(s) to have your home inspected or appraised, however, will be. Home inspection fees amount to roughly $100-200/hour, with the average home inspection taking two to three hours. Thus budget $300-$500 for your home inspection. Home appraisal fees, relevant if you are applying for a variable rate mortgage or are planning to use the property as a rental unit, run from $190-$300, depending on the extent of the home appraisal.

There are other inspections of the property you may request depending on the age of the home or your specific concerns. These can include an inspection by a foundation specialist, a plumber, an electrician, a pest inspector or a roofer. These specialists can provide you an estimate of the work that may need to be done to the property with varying inspection rates.

When your mortgage is firm and all contract pages are signed, it is time to contact a lawyer. This fee will average around $600 to $1,000, depending on the amount of disbursements on your contract. Disbursements are the fees that your solicitor will have to pay to third parties on your behalf.

If it all sounds overwhelming take a deep breath and open up a spreadsheet. Careful planning, and planning ahead, will save you stress when expenses arise. It is also recommended by most financial experts that you always retain an emergency fund that could cover at least a three month budget should unforeseen circumstances arise. Consider keeping a low-rate line of credit, that hovers close to prime rate, attached to your home too.

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