Purchasing a new home is one of the biggest financial decisions you’ll make in your life. With such a big investment to consider, it’s important to know the expenses involved before committing to a decision.
There are several expenses to purchase the home initially, but there are also considerable expenses after you buy a home.
While the down payment and closing costs are a big consideration before the purchase, you’ll still need money to pay your mortgage and upkeep your new property.
The best thing to do to prepare for these expenses is to be realistic about what you can afford, make decisions that support your financial goals, and be consistent with your saving and spending.
Read on to learn how you can prepare your budget to save for, buy, and live in a home.
Budgeting Before You Buy a Home
Decide What You Can Afford on a Home
When determining how much you should spend on a home, you should look at your income, the current interest rates, and your credit score.
Typically, you can multiply your annual gross income by 2.5 to get an idea of how much you can afford on your income.
However, interest rates also play a large part in how much you can afford. If interest rates are low, it becomes more affordable to buy a house since it increases your purchasing power.
While interest rates are largely influenced by the housing market, your credit score will also have a big impact on the rate you receive. The higher your credit score, the lower your interest rate.
If you’re still unsure about what you can afford, you can use an online mortgage calculator to get a better idea of what is realistic for you.
Calculate How Much to Save for a Down Payment
Deciding on a down payment is one of the biggest influences on how much you will pay for your home. If you use a larger down payment, you’ll have lower monthly payments over the life of your loan.
However, the typically 20% down payment is difficult for many new homebuyers to afford. While a higher down payment may lower your monthly payments, it can also be a barrier that keeps people from housing.
If a 20% down payment isn’t realistic for your situation, that doesn’t mean you’ll never be a homeowner, though. Some loans accept down payments as low as 3%.
However, if you do put down less than 20%, you are required to purchase private mortgage insurance, which is an added expense on top of your mortgage payment. This is designed to protect the lender if you stop making your mortgage payments.
Whether you put more or less than 20% down depends on your financial situation and your future goals, so it’s important to weigh the implications of each option. Talking to a mortgage lender can help you make the best choice for you.
Save for Closing Costs
While the down payment is the most expensive part of purchasing a home, it’s unfortunately not the only cost.
When you’re closing on a home, you’ll have to pay several closing costs, which can include title insurance, loan origination fees, lead-based paint inspections, transfer fees, and more. These charges come from your lender or a third-party service.
You can expect the closing costs to be around 3%-6% of the price of your home. Some of these fees can be negotiated, so discuss your options with your lender.
Consider Moving Expenses
Now that you own your home, it’s time to move in. You should set aside a fund for moving your belongings into your new space, whether that means hiring movers or purchasing the supplies to transfer everything.
You may also need to purchase new appliances if your home doesn’t include them or if the current ones aren’t functioning properly.
Now that you’re a homeowner, it’s time to revisit your budget to account for the new expenses you will incur as well as adjust your new financial goals after your big accomplishment.
Budgeting After You Buy a Home
Save for Maintenance and Repairs
While owning a home gives you a lot more freedom than renting, it also comes with many more responsibilities. The largest of these new responsibilities is the maintenance and repair costs.
It’s recommended to expect 1% of your home’s value to be spent on maintenance each year. While some years may not cost much, other years may be more expensive. Dedicated saving can help prepare you for those situations.
You don’t want to be unprepared if you need to fix a plumbing issue, a broken appliance, or any other problem that can come with owning a property.
Prepare for New Homeowner Bills
Owning a home also means a whole new set of bills to pay. The biggest home bill you’ll have will be your mortgage payment, but there can be several smaller ones that add up.
Homeowners insurance is a crucial bill to expect since it provides you with coverage in the event of theft or fire. It’s also required to close on your home.
Another new expense is property taxes. These are taxes charged by your local government to pay for public services in your area.
HOA fees are another location-based charge. If you live in a subdivision, your home may be a part of an HOA that you pay fees to in order to upkeep the neighborhood.
Have Room for Decorating and Upkeep
One of the most fun parts of owning a home is being able to decorate it how you want. Setting aside money for home improvement will let you tailor your home to your vision. This budget can include items like decor, home upgrades, new furniture, and more.
You’ll also need tools and equipment to upkeep your home, such as vacuums, filters, tools, etc. By setting aside some money to improve your home, you can start shaping it into the home you dreamed of.
Take the Next Step With Hunt Homes Group
Now that you have a better idea of how to prepare before and after you buy a home, you’re one step closer to being in the space you want.
The only thing left to do is take the next step.
At Hunt Homes Group, we can help you through the process of selecting and buying a home that’s right for your situation.
Whether you want to build from our floor plans or purchase one of our available homes, we can pair you with the home you’re looking for. Contact us today to get started.
