Potential first-time homebuyers are excited, and rightfully so. Interest rates are starting to come down, making mortgages more affordable. Nearly three-quarters, 74%, feel optimistic about the current housing market, according to TD Bank's annual First-Time Homebuyer Pulse survey for 2025.
If you're excited about buying your first home, there's a lot to figure out for your potential upcoming purchase: the new furniture, the landscaping, and the custom-made drapes you've had your eye on.
However, before diving into these details, you need a clear budget and sense of what you can reasonably afford. Otherwise, that dream home can become an ongoing source of headaches and financial stress. Here's how to design a smart budget for upcoming housing costs.
Remember, monthly costs are more than the mortgage
When determining how much house you can afford, a common rule of thumb is to spend no more than 28% of your pre-tax gross income. A couple earning $150,000 pre-tax could spend $3,500 on monthly housing costs.
While the mortgage payment will be most of that, you'll have other ongoing expenses as a homeowner:
- Property taxes range from 0.32% to over 2%, depending on the state. A $500,000 property with a 1% property tax rate would cost $5,000 yearly.
- Homeowners insurance. The typical homeowner paid between $90 and a little under $300 a month for homeowners insurance issued after January 1, 2024, according to data from Progressive.
- Utilities could be expensive if you buy a bigger property.
- Possible homeowners' association (HOA) fees. These cost a few hundred dollars a month on average, depending on the neighborhood.
Consider all these ongoing costs as you set your monthly housing budget and determine what you can safely afford.
Plan upfront expenses besides the down payment
In the TD Bank survey, 47% of potential first-time homebuyers reported saving up for a down payment as a necessary, critical step. First-time homebuyer programs, such as FHA loans, allow first-time buyers to potentially buy a home with a down payment of just 3.5% of the property value.
However, paying more upfront will help you get out of debt more quickly. You also don't have to pay private mortgage insurance (PMI) if your down payment is 20% or more of the property value. PMI fees typically range from 0.5% to 1.5% of your original mortgage until you've paid off 20% of the loan. A $500,000 mortgage would cost $2,500 to $7,500 yearly for PMI until it can be removed.
As you save up for the down payment, remember that you'll have other upfront costs to save up for too, including:
- The initial home inspection. These cost about $400 on average, according to Zillow.
- Closing costs to set up your mortgage loan. This includes services such as the appraisal of the property value, the loan origination fee, and legal fees. They typically run between 2% and 6% of the amount you want to borrow and can be added to your loan.
- Moving can cost several hundred to several thousand dollars, according to Zillow. Factor in that you may also need to take time off work.
Spend within your means for furniture
When you move into a home that you own, you might feel like your old furniture from your rental days needs an upgrade. That couch you've had since college will no longer cut it.
But as excited as you might be to furnish your dream property, once again, play it smart with your budget. Buy furniture you can safely afford within your monthly income and savings. Avoid going on a credit card spending spree for furnishing, or you could be charged sky-high interest rates until it's all paid off.
Remember, you'll likely live in your home for years. If you can't afford top-tier furniture right away, use a more affordable starter set or search online for secondhand furniture deals. Gradually upgrade room by room from there.
Prepare for future repairs
As a homeowner, you can't call a landlord to handle repairs. It's up to you to fix everything. A common rule of thumb is to put aside at least 1% a year of your home value for maintenance and repairs.
Since you never know when something major will come up, you should keep three to six months' living expenses in savings in an emergency fund. That way, if a pipe bursts or the roof springs a leak, you can cover the cost without taking on debt.
Keep a long-term focus for renovations
Your first property might need some work before it feels like the home of your dreams. But follow a smart budget for any renovations and upgrades. Aim to cover costs with your monthly income and savings versus using high-interest debt.
That might mean spreading out the renovations over time. Think about what work must be done immediately and what can be held off. For example, replacing a shaky water heater might be urgent in your first year, but remodeling the unfinished basement could likely wait.
Creating the perfect home is a marathon, not a sprint. You'll get there with patience and the right budget.
Help is here for you
There's a lot to figure out and budget for first-time homebuyers. No wonder 55% said they feel overwhelmed by the process. But you aren't alone. TD Bank's experts can help you set your plan.
TD Bank branches offer in-person workshops and seminars for people interested in buying their first home. You can contact your nearest branch to see when these programs will be available. You could also schedule a meeting with a TD mortgage professional to discuss financing, including the specific programs for first-time homebuyers.
In addition, TD Bank offers free online resources such as mortgage calculators, worksheets, and learning modules to teach you what to expect.
After you design the right budget, you can focus on designing the fun parts of homeownership, like the ideal color scheme for your walls and the perfect plants for your new garden.
