For some people, buying a home means living the American Dream. There are many benefits to buying your own home as opposed to renting. As long as you get a fixed mortgage, your monthly payments will be predictable, and you’ll get to build equity in your property instead of throwing your money away on rent. There are, however, many costs involved in buying a home, so before you start your search, be sure you’re in the right financial position to take this crucial step.
Buying a home starts with a down payment. While there are some programs that allow you to put down a minimal amount on your home, most people like to aim to put down 20 percent of the home’s purchase price. In some situations, it makes sense to put less than 20 percent. Just know that if you do, you will probably have to pay Primary Mortgage Insurance, or PMI until the amount of equity you have in your home is at least 20 percent of the home’s value.
There’s a lot of documentation and behind-the-scenes work involved in buying a home. Your mortgage loan issuer will need to be paid its processing fees, your title company will need to be paid for running a title search, and your local government office will need to be paid its recording fees. When you buy a home, you’re not just forking over a down payment; you’re also responsible for paying your closing costs up front. Closing costs typically run between two and five percent of your home’s purchase price. What this means is that if you’re buying a $200,000 home, you can expect to pay anywhere from $4,000 to $10,000 in miscellaneous up-front fees.
Unless you’ve got no furniture and just a small amount of stuff, you’ll need movers to help you transport your belongings to your new home. Depending on the amount of things you have and the distance between your old place and your new home, your move could cost anywhere from a few hundred to over $1,000. Be sure to budget accordingly.
Home Improvement and Repair Costs
Even if the home you’re buying is recently renovated and in great shape, there’s a good chance you’re going to need to make some improvements or repairs once you move in. You may come to find that a certain carpet or wall color doesn’t match your furniture. Or, worse yet, you could encounter more costly problems, like a leaky roof or poorly functioning heating system. When buying a home, it’s best to assume that you’ll need to spend anywhere from $1,000 to $5,000 or more on home improvements and repairs during your first year.
In addition to all of the above costs, make sure to have a financial safety net in place before you buy a home. The last thing you’d want is to work hard, save money, buy a home, become unemployed, and lose your home to foreclosure. You should aim to save up enough money to cover six months of expenses in addition to your down payment, closing costs, moving costs, and home improvement and repair costs. It may mean putting off buying a home for another six months or a year, but it’ll take a lot of the risk out of the equation.