How to Budget for a New Home

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• Smart Ways to Refine Your Personal Budget Before Buying a House •

We missed out on a lot during 2020. Celebrations, vacations, and occupations all looked different through the lens of a pandemic. Chances are you had to put some plans on hold. As we look ahead to 2021, it’s a perfect time to revisit goals and make adjustments for the new year.


If one of those goals was buying a home, rest assured you can still make your homeownership dream come true. No matter where you are in the buying process, there are important steps you can take right now to keep you on the path to meet your goals.

What to Expect in the California Real Estate Market

You won’t see any traditional open houses right now, but California’s real estate market still shows signs of life. Home values continue to increase across the state, and the average selling price should surpass $648,000 in 2021. Even in the midst of the pandemic, there was an uptick in single-family home sales.

Two important factors are at work here. First, borrowers want to lock in interest rates as low as 2.5% while they’re available. Second, there has been a shift in homebuyers’ interest from urban to suburban neighborhoods that may be better suited for work-at-home arrangements.

The bottom line is people want to move, and low inventory creates a competitive real estate market. There are plenty of buyers looking for a new place to live, especially in affordable neighborhoods in East Bay, Orange County, and Los Angeles. You can be one of them if you plan accordingly.

The Most Important Action You Can Take Right Now

With a competitive housing market and pandemic-related restrictions, it’s more important than ever to show sellers you’re a viable homebuyer, meaning you have the financing available to purchase. Now is the time to find out where you stand financially and how much house you can afford to buy.

You can check your credit score through a credit monitoring site, but that doesn’t give you a complete picture. When you apply with a lender, you’ll know exactly how much they’re willing to loan you based on your current credit score.

a man and woman looking at a phone

How to Get Pre-Approved for a Loan

The lender will look at three factors: income, credit score, and assets. If you’re employed, the lender wants to see how much money you’ve made during the last 30 days and that you have consistent income. If you’re self-employed, you’ll need to show your average income for the last two years.

Your credit score should be at least 620 for an FHA loan and at least 640 for a conventional loan. You’ll get better interest rates with a credit score above 720. Additionally, the lender wants to know how much money you have for a down payment and closing costs, as well as your cash reserves.

  • Aim for a credit utilization of less than 30%. If your credit card has a limit of $10,000, you should carry a balance of less than $3,000.
  • Diversify your credit. Ideally, you should have a mixture of different types of debt — credit cards, auto loans, student loans, etc.
  • Use your credit. The lender wants to see that you can use your credit responsibly, so use your cards and pay the balances.
  • Budget your money. Your housing expenses should take up less than 38% of your income, and your total debt obligations should be no more than 43% of your income.

How Much Money You Really Need to Buy a Home

The purchase price is just part of the total cost of buying a home. Your down payment will be between 2% and 10% of the sale price. Closing costs should be between 2% and 3% of the sale price. You’ll also need up to six months’ worth of payments available in a bank account or 401(k). Other costs include insurance, repairs, and utilities.

Remember that the money for your down payment can come from different sources. You can use a gift from a family member, borrow money from your 401(k), cash in a savings account or stocks, or sell your current house.

It Takes More than Money to Buy a Home

Securing financing is just one part of the home-buying process. This is also a good time to take care of other matters. Start thinking about where you want to live and the type of house that appeals to you. If you’re a permanent resident or have a work visa, you’ll need to meet special requirements for a loan.

Now more than ever, it helps to have someone available to schedule home tours and communicate with sellers. The right real estate agent can guide you through the homebuying process from start to finish. Start by selecting an experienced agent who understands the needs of first-time and repeat homebuyers.

The Bottom Line

Call us at (858) 880-0195 or email to get started. We’re here to help 7 days a week from 9AM to 8PM. 

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About The Author
Portia Green, REALTOR®

Portia Green is a highly experienced full-time REALTOR® specializing in the representation of Sellers, heralded by her clients as data-driven and an effective negotiator. Producing $25M total in residential sales volume, Portia's goal is to help her clients achieve the best results when selling their homes and to make their experience an enjoyable one. She has successfully sold real estate since 2008 and has gained an in-depth knowledge of local real estate markets & seasonal trends. Portia has achieved a 100% customer satisfaction rating and wants to share her expertise & personal service with you in the sale of your home. When listing your home with Portia Green and Compass, you'll receive the hands-on service you need and desire. Portia will help you manage the entire process of selling your home from pricing, preparing and staging the house, to marketing, negotiating offers, inspections, all the way to closing. She will recommend skilled vendors for any job needed, personally host Open Houses, and ensure that all showings are accompanied. At Compass, Portia offers a wise no-nonsense way to sell your home for the best price and the least hassle. With a keen eye for staging & preparing listings to maximize Buyer appeal, all of Portia Green's listings are professionally photographed using HDR (High Dynamic Range) photography to provide the highest quality photos in the industry. Professionally printed marketing materials are prepared for all Open Houses. We also capture a 3D scan of your home that creates an interactive walkthrough online along with a custom-designed floor plan and targeted digital marketing campaigns on Google & the most popular social media channels. Compass participates in the Multiple Listing Service, which is the local real estate database of homes listed for sale that all REALTORS® use in helping their Buyers find houses. Your home will appear on every real estate website, in its best light, making a stunning camera-ready debut. Portia Green's home valuation expertise and extensive experience in comparative market analysis will help price your home accurately. She has refined her skills to help you pinpoint which features of your home will result in more showings and better results. Her mantra is for you to be ready to sell your home and feel good about that first. Portia knows that home inspectors always find a problem; that drones take some of the best photos in town; and that her eyebrows will grow to the floor in the time it takes her to read everything that's happening with your HOA, but that doesn't mean she won't do it anyway. Eyebrows be damned. You'll always need a place to unplug, connect, dream, grow, or just be yourself. That makes what Portia does even more meaningful. She’s ready to go the extra mile to help you find just the place. Whether you're selling your very first home, offloading an investment property, or want a vacation getaway with passive income, she is attentive to the details of every home sale. Portia helps busy people navigate this crazy real estate market like a pro, so don't be shy. Every great relationship starts with free advice and a friendly chat. Ask as many questions as you need to. Selling houses is her jam!