Buying a house can be an exciting time in your life, but unfortunately, it can also be an expensive business and it is very important to start saving sooner rather than later. We’re in a buyer’s market at the moment, so the more savings you can put aside, the better positioned you’ll be to act quickly when you find the house of your dreams.
It’s important to know what you’ll have to spend money on when buying a house, because there’s a lot more to it that just arranging a mortgage. Here are a few expenses you should account for when saving for your new home.
- Mortgage Down Payment
The most important expense is the down payment because without this, you simply won’t get your mortgage. The amount of the down payment can vary between loans and lenders so you must research the type of loans you qualify for. The down payment could be as low as 3.5% or as high as 20% of the total sum you want to borrow. So, if you want to buy a house valued at $100,000, that would mean a down payment of between $3,500 and $20,000.
- Title, Insurance & Survey Work
Once you’ve seen the house you want to buy, and you’re ready to go ahead, you will also need to pay to get the title insurance and survey work carried out. This is an important part of the house buying process and isn’t something you can ignore. The cost for this work will usually be a percentage of the house value, so on average between 0.5% and 1.5%. It can vary depending on the location of the house, but again, using the example of $100,000 property, this would come out to between $500 and $1,500.
- Closing Costs
When the sale is ready to complete, there are a number of costs and taxes to pay during the closure of the sale. These closing costs are usually calculated as a percentage of the sale, so if you budget for between 0.5% and 1.5% will differ between locations and property values, but is another expense to budget for.
- Private Mortgage Insurance Premiums
If you make a down payment of less than 20%, you may have to take out Private Mortgage Insurance. This is to protect the lender in the event you default on the loan. The premiums would be calculated on the amount of the loan.
- Bank & Lender Costs
When you arrange your home loan, make sure you clarify details of any additional bank or lender costs that are not obvious. Sometimes a bank will charge an additional fee which they might add on to the total loan. If your bank will charge fees, make sure you budget accordingly.
Property insurance is something all home buyers should budget for. Any structural damage to your home, including theft or fire needs to be covered, so you can research appropriate insurance premiums while you are still saving and include this in your budget plan.
- Home inspection fees
When your real estate agent introduces you to your ideal house, it’s important to get a professional home inspection. Some inspectors will charge a flat rate and others will charge by square footage, but on average, and inspection will be in the region of $300 to $1000 for the average property. An inspection report is well worth the investment as it could identify potential problems with the house.
- First Mortgage Payment
After everything goes through and you’re in your new house, don’t forget that first mortgage payment. If you’ve taken out a low interest loan, this first payment might be small, but these payments aren’t always deducted from your bank account at the right time, so you must make sure you have sufficient funds in your account to meet that first payment. Subsequent payments will settle down to a regular day in the month around your payday.
Saving money towards buying a house is the sensible thing to do, and by understanding which expenses are involved in the process, you’ll be able to set yourself realistic goals and targets. For some people this might mean planning 5 or 6 years ahead whereas for others, it might just mean saving for a year or two. Open a new bank account specifically for your savings and preferably opt for one which offers a better rate of interest if you don’t withdraw the money for a set period. Above all, determination and the commitment to reach your savings goal are really important
Saving up to buy your first home isn’t always easy and this list may seem like a mountain, but every home buying situation varies a little bit. Some costs can be absorbed in the loan which means you may pay more for them in the long run but thereâ€™s less cost up front and you may get in your home sooner. Don’t be discouraged. No one ever said buying a home was easy, but most would say it’s worth it when they hand you the keys to your new home.