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Lesson 2: Setting A Comfortable Budget - More Than Just What You Can Afford
Welcome Back, Smart Home Buyers!
Welcome back to Home Buying 101! I'm Tom Brady, and we've just covered the critical importance of getting pre-approved rather than pre-qualified. Now that you know what you CAN borrow, we need to talk about what you SHOULD borrow – and there's often a big difference.
Today we're going to talk about setting a comfortable budget that allows you to not just buy a home, but actually enjoy living in it without becoming what we call "house poor." Because here's the truth: Just because you can go up to a certain amount doesn't mean it's comfortable for you.
The Foundation: Understanding PITI
Before we dive into budgeting, you need to understand what actually makes up your monthly housing payment. Remember PITI: Principal, Interest, Taxes, Insurance (home and flood). Let me break this down:
P - Principal
The amount that goes toward paying down your loan balance
I - Interest
The cost of borrowing money from the lender
T - Taxes
Property taxes paid to your local municipality
I - Insurance
Homeowner's insurance and flood insurance if required
Monthly Payment = P + I + T + I
This simple formula is crucial because many first-time buyers focus only on the principal and interest, completely underestimating their actual monthly costs.
The "T" is for TAXES: Long Island's Big Reality Check
This is the big one here. Let me show you how wildly property taxes can vary between two similarly priced homes in different school districts, and why this matters so much for your budget.
Real Example:
$600,000 home in Garden City:
Property taxes approximately $16,000/year = $1,333/month
$600,000 home in Levittown:
Property taxes approximately $8,000/year = $667/month
Monthly difference: Over $650 just in taxes!
When you add principal and interest (let's say $2,400/month on a $480,000 mortgage), here's what your total monthly payments look like:
$4,033
Garden City home monthly payment
$2,400 + $1,333 + $300 (insurance)
$3,317
Levittown home monthly payment
$2,400 + $667 + $250 (insurance)
That's over $700 difference per month – or $8,400 per year – for the same purchase price! This is why you absolutely cannot budget based on purchase price alone.

Look Beyond the Sale Price: The #1 thing Long Island buyers underestimate is PROPERTY TAXES. A $600k home in one town can have $8k/year taxes, and in another, $16k. This single factor can make or break your budget comfort.
Hidden Costs of Long Island Living
Budget for utilities, maintenance and lifestyle. Long Island has some unique costs that buyers from other areas might not expect:
Heating Costs
  • Oil heat: $2,500-$4,000 annually (price volatile)
  • Gas heat: $1,800-$3,000 annually (more stable)
  • Electric heat: $3,000-$5,000 annually (less common)
Landscaping and Snow Removal
  • Professional landscaping: $2,000-$5,000 annually
  • Snow removal service: $400-$800 per season
  • DIY costs: Equipment, tools, and your time
Transportation
  • LIRR monthly passes: $200-$400+ depending on zone
  • Parking at stations: $100-$300+ monthly
  • Gas and car maintenance: Higher due to commuting distances
Insurance Costs
Homeowner's insurance: $1,500-$4,000 annually
  • Flood insurance: $400-$2,000+ annually in flood zones
  • Higher premiums on South Shore and coastal areas
  • Umbrella policies often recommended due to higher property values
The "House Poor" Trap: Why Comfort Matters
Focus on comfort, not max limits. Being "house poor" means you can technically afford your mortgage payment, but have no money left for anything else – no dining out, no vacations, no emergency repairs, no savings for your future.
Signs You Might Be Heading for House Poor:
Mortgage payment exceeds 28-30% of gross income including PITI
Total debt payments exceed 36-40% of gross income
No money left for entertainment, dining, or hobbies
Constantly stressed about money and expenses
No emergency fund for home repairs or job loss
A Comfortable Budget Allows For:
Regular savings
for emergencies and goals
Lifestyle expenses
you currently enjoy
Home maintenance
and improvements over time
Family activities
and entertainment
Peace of mind
about your financial security
Beyond PITI: The Complete Cost Picture
Don't forget closing costs (2-5% of purchase price), moving expenses, immediate home improvements, and 6 months of mortgage payments in emergency savings.
Closing Costs (2-5% of purchase price): For a $600,000 home, that's $12,000-$30,000 you'll need in addition to your down payment.
Breakdown includes:
$1,200-$2,000
Attorney fees
$1,800-$2,500
Title insurance
$500-$1,500
Bank fees
$350-$500
Recording fees
$900-$1,500
Survey
$500-$1,000
Inspections
$500-$700
Appraisal
$1 per $1,000
Mansion tax
(over $500k in Nassau)
Moving Expenses:
Professional movers:
$1,500-$4,000
DIY moving:
$500-$1,500 (truck rental, supplies, help)
Temporary storage:
$100-$300 monthly if needed
Time off work
for moving and setup
Immediate Home Improvements:
Security system:
$500-$2,000
Lock changes:
$200-$500
Basic furniture
for unfurnished spaces: $2,000-$10,000
Window treatments:
$500-$2,000
Immediate repairs
from inspection: $500-$5,000
Emergency Fund:
6 months of mortgage payments
in savings
Separate from down payment
and closing costs
For job loss, major repairs, or life changes
Minimum $10,000-$20,000
for most Long Island homes
Private Mortgage Insurance (PMI): When It Applies
PMI is required when you put down less than 20% and adds to your monthly costs:
PMI Costs:
1
Typically 0.3% to 1.5% of loan amount annually
2
On a $400,000 loan: $100-$500 monthly
3
Paid monthly with your mortgage payment
4
Can be removed once you reach 20% equity

PMI Example: $500,000 purchase price, $25,000 down (5%)
  • Loan amount: $475,000
  • PMI: approximately $200-$400/month
  • Must be included in your budget calculations
Strategies to Avoid or Minimize PMI:
Save for 20% down
if possible
Consider 80/10/10 loans
(first mortgage, second mortgage, down payment)
Look for lender-paid
PMI options (higher rate, no separate PMI)
VA loans
(no PMI for qualified veterans)
Creating Your Realistic Budget
Step 1: Calculate Your Gross Monthly Income Include all reliable income sources (salary, bonuses, side work, etc.)
Step 2: Apply the 28/36 Rule (Conservative)
28%
Housing costs
shouldn't exceed 28% of gross monthly income
36%
Total debt payments
shouldn't exceed 36% of gross monthly income
Step 3: Calculate Maximum Comfortable PITI Take your gross monthly income × 0.25 (even more conservative than 28%)
Example Budget Calculation:
$120,000
Household Income
annually ($10,000 monthly)
$2,500
Maximum comfortable PITI
$10,000 × 0.25 = $2,500/month
Now work backwards:
Property taxes:
$1,000/month (estimate for target area)
Insurance:
$300/month (homeowner's + flood)
Available for P&I:
$2,500 - $1,000 - $300 = $1,200/month
This P&I supports approximately:
$250,000-$275,000 loan
With 10% down, purchase price: $275,000-$305,000

But wait – this might feel low compared to your pre-approval amount. That's the difference between what you CAN afford and what's COMFORTABLE.
The Long Island Budget Reality Check
Factor in these Long Island specifics:
Higher Property Taxes:
  • Budget 1.5-3% of home value annually
  • Research specific towns and school districts
  • Factor in potential increases over time
Utilities:
  • Oil heat: $200-$350/month average
  • Gas heat: $150-$250/month average
  • Electric: $150-$300/month depending on home size
  • Water/sewer: $50-$150/month
Maintenance:
  • Budget 1-3% of home value annually
  • $500,000 home: $5,000-$15,000/year maintenance
  • Older homes require more maintenance
  • Weather-related repairs (storms, flooding)
Lifestyle Costs:
  • Commuting to NYC: $300-$600/month
  • Higher cost of goods and services
  • Entertainment and dining: typically more expensive
  • Beach permits and recreational fees
Sample Monthly Budget Breakdown
For a $500,000 home purchase:
Housing (PITI): $3,200
  • Principal & Interest: $2,000
  • Property Taxes: $1,000
  • Insurance: $200
Utilities: $400
  • Heat: $200
  • Electric: $150
  • Water/Sewer: $50
Maintenance Reserve: $400
Annual $5,000 ÷ 12 months
Other Housing Costs: $200
  • LIRR parking: $100
  • Snow removal: $50
  • Misc. home costs: $50

Total Housing-Related: $4,200/month
For this to be comfortable, household income should be approximately $16,800/month or $200,000+ annually.
Common Budgeting Mistakes
1
Focusing Only on Principal and Interest
Property taxes and insurance can double your actual monthly cost.
2
Using Best-Case Scenarios
Budget for average or higher costs, not the lowest possible amounts.
3
Forgetting About PMI
If you're putting down less than 20%, include PMI in your calculations.
4
Ignoring Lifestyle Costs
Your housing budget affects every other aspect of your spending.
5
No Emergency Fund
Don't use all your savings for down payment and closing costs.
Your Budgeting Action Plan
Before House Hunting:
  1. Calculate your comfortable PITI using 25-28% of gross income
  1. Research property taxes in your target areas
  1. Get insurance quotes for different neighborhoods
  1. Factor in all Long Island-specific costs
  1. Ensure adequate emergency fund remains after purchase
During Your Search:
  1. Calculate total monthly cost for each property you consider
  1. Research actual utility costs with current owners
  1. Factor in commute costs if working in NYC
  1. Consider future tax increases and assessment changes
  1. Stay within your comfort zone, not your maximum approval
The Emotional Side of Budgeting
It's natural to want the nicest house you can possibly afford, but remember:
A house is a home when you can comfortably afford it
Stress about money affects your quality of life daily
Room in your budget allows for life's unexpected events
Financial flexibility lets you enjoy your home and life
Conservative budgeting often leads to greater long-term wealth
Working with Your Budget
Once you've set your comfortable budget:
Stick to it
even when you see beautiful homes above your range
Communicate it clearly
to your real estate agent
Don't let anyone
talk you into spending more
Remember that
you can always upgrade later
Focus on
what you can afford comfortably today
Final Thoughts on Budgeting
Your budget isn't just about getting approved for a mortgage – it's about setting yourself up for long-term financial success and happiness in your home.
A comfortable budget allows you to:
Enjoy your home
without financial stress
Maintain and improve
your property over time
Weather unexpected
expenses or income changes
Save for other
life goals and dreams
Sleep peacefully
knowing you can afford your payments
Remember: The goal isn't to buy the most expensive house you can qualify for – it's to buy a home that fits comfortably within a budget that allows you to live the life you want.
Looking Ahead
In our next lesson, we'll use your budget to create a realistic Must-Have vs Wants list that aligns with what you can comfortably afford. Your budget will be the foundation for making smart decisions about features, location, and home size.
But first, get your budget right. Because everything else in your home search should flow from this foundation of financial comfort and security.
Thanks for watching/ reading, and remember – the right budget today sets you up for homeownership success tomorrow!
Next up: Creating your Must-Have vs Wants list that aligns with your comfortable budget.
Thomas Brady SFR, e-PRO, SRES, BPOR,C_REPS
Licensed Associate Real Estate Broker/ Director of Operations
Notary Public, Retired N.Y.P.D. Lt., U.S. Air Force Veteran
Vintage American Realty LLC.
1551 Montauk Hwy. Suite E
Oakdale, NY 11769
631-682-8660