It’s no secret that buying a house is an extensive process - the home buying process can take upwards of a year. For first-time home buyers, the intensity is magnified and it could be overwhelming to find a starting point. There are so many components when it comes to buying a house -- you have to find an agent, provide adequate funds, get pre-approved for loans and mortgages, find a house (which is surprisingly harder than you might think!), and put in an offer. If you’re buying a home in 2021, it’s recommended that you move fast as the market is incredibly hot and houses are quickly going off the market.
Home buyers are always encouraged to start developing a five year plan to ensure that you are prepared at the point of purchase. Typically, most plans start with establishing a budget to ensure that buyers have enough funds in their savings. However, it can get tricky to determine the exact amount to save for, especially for first time buyers! Your budget should cover all the closing fees, but do you know what other costs are involved?
How much house can you afford?
First things first, even before you start looking at homes, buyers should get pre-approved for a loan. It is important that you know the price range that you can realistically afford. Not only does this prevent you from falling in love with a house outside of your budget, it helps the buyers and agents establish a realistic price point and narrow down the search.
It’s estimated that closing costs are roughly 2-5% of the cost of your new house. For first-time buyers, these costs may be unexpected -- which is totally understandable; when people start saving up for a house, they generally tend to focus on saving up for a down payment, but closing costs add up quickly! Once an offer is accepted, buyers need to pay for appraisals, title insurance, property taxes, and escrow fees on top of their initial down payment.
Depending on where you live, you may have to pay homeowners association fees. This is a monthly fee that you pay your neighborhood organizations for regular maintenance on community amenities. Some HOAs may also have guidelines about the appearance of your house since it directly impacts their curb appeal - be prepared to pay for maintenance on the exterior of your house if that’s the case!
Repairs and Renovations Costs
Typically, it is the buyer’s responsibility to pay for a home inspection. You’ll want to get a thorough inspection done -- inspectors are looking for structural damage, as well as making sure that the water and heating systems are up to code. The costs of a home inspection varies by state, but it is definitely something that you want to invest in - you don’t want to skimp on the home inspection and find all the issues and hidden costs of a house after you’ve already purchased it!
If you’re in the market for a fixer upper, or if you happen to purchase a house that needs a bit of work done, then the repairs and renovation costs really add up! It would be best for buyers to consider the type of house they are looking for when they’re working on their savings. It’s one thing to buy a house that needs a new water heater, it’s entirely a different game when you buy a house that needs a brand new kitchen. By allocating money towards a repair fund, buyers will give themselves a bit of cushion just in case you do end up purchasing a house that needs to be updated before you can move in.
It is a common mistake for buyers to forgo moving costs in their budgets. Closing on a house doesn’t mean that all costs have been taken care of. Once buyers close on a house, it’s time to coordinate the technical aspects of turning that house into a home. Renovations and decorations aside, the cost of moving your belongings to a new location, especially if you’re making a big move, can be costly. Packaging supplies, transportation, and any added help (movers, cleaners, storage, etc.) can add up. Be sure to include additional funds in your budget to accommodate for the cost of moving.
When it comes to budgeting, most people are focused on saving the funds needed for an adequate down payment. However, buyers tend to overlook the other costs that are involved with owning a house. Be sure to give yourself ample time to grow your savings so that you are able to address all closing costs and any renovation fees.
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