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First time patrons bills you have to save for

Lots First time buyer underestimate how much it really costs to buy (and maintain) a home.

In this article, we're going to take a closer look at some of the expenses that you need to anticipate and save when purchasing your first home, so that you will be ready in due course.

deposit

As a First time buyerYour biggest expense will usually be your down payment. This is the first major payment you will make on your home purchase. Your down payment is calculated as a percentage of the purchase price of your new home. For example, if you buy a home for $ 200,000 and want to save 10%, get $ 20,000 off. Your down payment is due when you close your loan.

Many first time buyers believe they can't buy a home if they don't save 20%. This is not a requirement – it is possible to buy a home with as little as 3% off a traditional loan. Something government-supported mortgages even have 0% deposit requirements. However, a larger deposit has some advantages:

Avoid PMI. If you take out a conventional loan and take less than 20% off, you will need to get personal mortgage insurance from your lender. PMI protects your lender if you default on your credit. PMI is added to your monthly payment and does not give you any benefits. Having a 20% deposit can avoid paying PMI.
Get a lower interest rate. The less money you borrow, the lower the risk to your lender. If you have a higher down payment, your lender can offer you a lower interest rate.
Qualify for a home loan with a lower credit score. You may still be able to get a mortgage if you have a lower credit score. If you take out an FHA loan If you have at least 10% less, Rocket Mortgage can qualify you with a credit score as low as 580®.
You can lower your monthly payment. As you spend more money, you lower what you have to pay your lender each month. If you take some time to save more before you buy, you will find it easier to process your mortgage for years to come.

The final result? A large down payment is not a requirement for home buying, but it can be helpful and allow you to unlock more mortgage options.

Closing costs

Closing costs are fees that you pay your lender in return for extending your loan. For example, the closing costs pay off for your appraisal, property insurance, and any inspections you need to do prior to closing. The specific closing costs you will have to pay will depend on where you live, the size of your loan, and the type of loan taken out. As with your down payment, your closing costs are due when you close your loan and take control of your property.

What do first-time buyers usually pay for closing costs?

Typically, expect 3% – 6% of your total loan value as closing costs. This means that when you take out a $ 200,000 mortgage loan, you will typically pay $ 6,000 to $ 12,000 in closing costs. You can see a detailed list of all the closing costs that you will have to pay for when you receive yours Completion of Disclosure.

In some cases, you can benefit from it Seller concessions and let the seller agree to pay some of the closing costs.

Completion of cost support for first-time buyers

When you think about closing costs and rethinking home ownership, you know there are many Government-sponsored programs for first-time home buyers available. There are also programs for Advance payment assistance.

Maintenance and repairs

If you rent an apartment and your HVAC system fails, your landlord is responsible for paying the repair bill. If you own your home, you will have to pay all repair costs.

Many homeowners underestimate the cost of maintenance and repairs. If you have one detached houseyou can expect to pay 1% -3% of the value of your home for repair and maintenance costs. That can be $ 2,000 to $ 6,000 a year if you own a $ 200,000 home. You could be spending even more each year if your house is older or in need of repair.

It can be a good idea to set up an emergency fund before considering buying a home. An emergency fund can help you cover costly repairs if an urgent situation arises. Your emergency fund should be separate from your down payment and in a place where you can access it quickly, like in a savings account. By covering repairs quickly, you can avoid long-term damage to your property. For example, if a pipe breaks, you'll want to have cash on hand to call a plumber right away.

Furniture and appliances

Depending on the condition and size of your home, you may need to purchase everything from new blinds to new lighting fixtures. This can quickly become an expensive undertaking. For example, you can spend $ 1,000 or more on a new sofa.

There are several ways that you can reduce your furniture costs. Try to reuse any furniture you already need to finish your home. When summer is over, furniture and small appliances can often be found at flea markets for a fraction of their retail prices. Online sales sites like eBay, LetGo, and Craigslist have great deals all year round, as do local used or consignment stores. If you feel particularly practical, you can also breathe new life into old pieces of furniture by making them yourself. For example, some sandpaper and a fresh paint job can make an old coffee table glow for less than $ 50.

You may also need to purchase equipment for your new home. When buying a home, ask the previous owner what equipment the home comes with and which ones they are bringing with them. You may be able to make a lot of money on large appliances by offering to buy them from the seller when you move out.

Property taxes and HOA fees

You don't pay property tax when you rent a house or apartment. However, you need to plan taxes in advance once you become a homeowner.

Property taxes are paid to your local government. You pay for things like public schools, roads, and fire departments. No matter where you live, you pay property tax. Most counties calculate your taxes based on a percentage of the value of your home. If you live in more expensive property or in an area with higher local tax rates, you'll pay more.

Your mortgage company may hold your property taxes in an escrow account. An escrow is a neutral third-party account that has funds in it for future use. Lots of mortgage lenders Add your property tax and homeowner insurance to your monthly payment. Then they transfer these funds to an escrow account until your taxes are due.

This method is beneficial to both you and your lender. You can pay your taxes in small increments throughout the year instead of worrying about one large one-off payment. Your lender will be given assurances that you will not Get a lien on your house for not paying taxes. Your lender may not include escrow contributions in your monthly payment. Hence, you need to anticipate your local taxes yourself and plan ahead.

You may also need to budget for homeowners association fees. These cover the costs of maintaining the community's public areas. The amount you pay in HOA fees depends entirely on where you live. HOA fees can range from a few hundred dollars per year to thousands of dollars per month, depending on the equipment. The average single-family home owner pays $ 200 to $ 300 a month in HOA fees.

Utilities

You may have paid some of your utilities when you rented a room. Your landlord may also have agreed to handle some monthly bills on your behalf. As a homeowner, you must cover 100% of the costs of heating, cooling and lighting your home.

House expenses can quickly become a much larger bill than most new homeowners expect. Houses are usually larger than apartments, which means that heating and cooling can cost a lot more. The average homeowner in America spends about $ 270 a month on home appliances.

Before moving to your new space, it is very important that you remember to bring all of your local utilities to your home. Do some research on all of the utilities you will have to pay for and make sure the local utilities know you live at the address now. This way you ensure that you receive your bills on time and that you don't accidentally miss a payment.

Bottom line: be prepared for additional fees when purchasing your first home

Buying and maintaining a home is more expensive than many first-time owners expect. First, you need to save a set percentage of your home value for a down payment. In most cases, you don't need a 20% down payment to buy a home. However, as you get a larger down payment, you gain access to more credit options. You will also need to save an additional 3% -6% of your loan value to cover closing costs, unless you can negotiate seller concessions or wrap some of the fees in your loan.

Closing your loan is just the beginning. You will also have to bear the ongoing costs of maintaining your property. As a homeowner, you must pay property taxes to your local government. If your mortgage lender doesn't keep these payments in escrow all year round, you'll have to save for them yourself. You may also need to pay HOA fees if you live in an area controlled by a homeowners association. Don't underestimate the cost of utilities and furniture. Moving to a larger space can add significantly to these costs.

Originally published on Rocket Mortgage

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