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9
How Much Should You Save For A House? Here's What You Can Expect
Buying a home is one of life's largest expenses. If you're a first-time buyer, it can be challenging to determine exactly how much you need to save before making a purchase. Closing on a home involves many different payments, fees, and taxes. Keeping it all straight, let alone coming up with accurate estimates, can be difficult, to say the least.
Clients frequently ask our real estate agents about various closing costs and monthly mortgage calculations and often want to know how much money they should save prior to making a home purchase. Here is a quick summary of the various expenses associated with becoming a first-time homeowner.
Upfront Costs Associated With A Home Purchase
Closing on a home requires buyers to bring a significant amount of funding to the table. If you're thinking about purchasing one of these beautiful Brooklyn homes for sale, here is a quick list of expenses you'll need to budget for ahead of the closing process
- The Down Payment
If you're looking to finance your home purchase, your lender will require that you make a down payment at closing. We recommend putting down 20% if you can. This will not only earn you more home equity right off the bat, but it will also help you avoid paying private mortgage insurance (PMI), which lenders require in the event you default on the loan.
If you can't put down 20%, don't sweat it. There are many loan options that allow 10%, 5%, and if you qualify, 3.5% down. - Closing Costs
Buyers are also responsible for paying closing costs, which cover various expenses related to the actual closing process. This can include mortgage origination fees, processing fees, notary fees, transfer fees, county/city stamps, and much, much more. Closing costs are difficult to estimate — as they depend on your sale price and your location. However, you can generally assume they'll run anywhere from 3% to 7% of your home's price. - Prepaid Expenses
Most mortgage companies will outline a process for collecting prepaid expenses at closing. Prepaid expenses are funds used to cover property taxes and homeowner's insurance premiums. When closing a home, you're required to pay 6 to 12 months' worth of fees upfront, which are then placed in an escrow account. You'll want to calculate your property taxes and home insurance premiums to get a sense of how much you'll need to pay upfront.
Ongoing Costs Associated With Home Purchases
While your largest payment will take place at closing, owning a home comes with monthly and annual expenses as well.
- Monthly Mortgage Payment
Your monthly mortgage payment includes principal balance, mortgage interest, property taxes, and home insurance premiums. If your property includes HOA fees, you'll want to factor those in as well. - Maintenance and Upkeep
Even if your home inspection doesn't uncover anything significant, you never know when something is going to go wrong. You should always keep some backup funds saved for home repairs and upgrades. We usually recommend budgeting 1% of your home value annually for home repairs; however, some renovations, like a roof replacement, can have an expensive price tag.
Purchasing a home is a great investment, but you want to be sure you can afford it. By taking the time to understand all the various expenses associated with homeownership, you can be sure you're prepared from a financial standpoint. Contact us today for more information on how to purchase your first home.