Tip 2: Save for Homebuying Expenses
In the previous blog posts in our “Top 10 First-Time Homebuyer Tips” series, we discussed Determining your Ideal Budget. Tip two in our Home Buying Series is to “Save for Homebuying expenses”. Some of the expenses when purchasing a house includes the following: down-payment, closing cost, home inspections, appraisal, and earnest money.
- DOWNPAYMENT: A down payment is typically between 3-20% of the purchase price of the home. If you can put down more it would decrease your monthly mortgage payment. I work with a lot of First Time Home Buyers and I understand that oftentimes you don’t have the entire 3.5% to put down on your home. There are down-payment assistance programs that can help, keep in mind that it may increase your monthly mortgage payment.
- CLOSING COST: Closing cost is the fees associated with finalizing your home purchase. This includes the lender’s fees, title insurance, and other miscellaneous fees.
- HOME INSPECTION: A home inspection is a visual examination of the overall condition of a property. You should always get a home inspection even if you are purchasing a brand-new home! The cost of the inspection is the responsibility of the buyer and is not refundable. Outside of traditional home inspections, some buyers also have termite and radon inspections.
- APPRAISAL FEES: The appraiser will visit the property to confirm the value of the home.
- EARNEST MONEY: This is a deposit that shows you are serious about purchasing a home. It is typically 1-2% of the purchase price and is held in escrow until closing.
Saving for these expenses can be difficult, but there are a few ways to help make it easier. Here are some initial steps you can take to save for your dream home.
Tips to save for a home
1. Determine How Much You Need to Save
The first step is to figure out how much money you need to save for your home expenses. As mentioned earlier, the standard down payment is 20 percent of the home’s value. However, there are programs available that allow for a lower down payment, such as 3 percent or 5 percent.
Once you know how much you need to save, you can start creating a budget and looking for ways to cut costs so that you can divert more money toward your savings goal.
2. Open a Dedicated Savings Account
Once you know how much you need to save, open up a dedicated savings account that will be used solely for your down payment fund. This will help you keep track of your progress and resist the temptation of dipping into the account for other purposes.
3. Automate Your Savings
One of the best ways to make sure that you stay on track with your savings goals is to automate your savings. This means setting up automatic transfers from your paycheck or checking account into your dedicated savings account. This way, you’ll never even see the money and will be less likely to spend it on other things.
4. Make Extra Payments When Possible
If you get a bonus at work or come into some extra money somehow, resist the urge to spend it all immediately. Instead, put as much of it as possible towards your homebuying fund so that you can reach your goal even faster.
Avoid excess spending in general and put any extra money you have towards your savings so that you can reach your goal more quickly.
Saving for a home doesn’t have to be impossible. By following these tips, you can make the process a lot easier and less stressful. And, before you know it, you’ll have saved up enough for your dream home.
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