If you’re getting ready to purchase your first home, congratulations! Becoming a homeowner is a significant milestone but comes with various expenses beyond the purchase price. Preparing financially is key to ensuring a smooth and stress-free transition into homeownership.
To help you get started, here are 5 significant expenses first-time home buyers should start saving for as they prepare to buy a home.
1. Down Payment
The down payment is typically the most considerable upfront expense when buying a home. This is the portion of the home’s purchase price you pay out of pocket, while the rest is financed through a mortgage. The amount you’ll need to save depends on the type of loan you choose:
- Conventional mortgages usually require 3% to 20% of the home’s price. If you put down less than 20%, you’ll likely need to pay for private mortgage insurance (PMI).
- FHA loans allow you to put down as little as 3.5%, while USDA and VA loans offer options with no down payment, provided you meet specific eligibility criteria.
Saving for the down payment is essential. The more you can put down, the less you’ll need to borrow, reducing your monthly mortgage payments and possibly avoiding PMI altogether.
2. Closing Costs
Closing costs are fees and expenses required to finalize the home purchase. These costs typically range from 3% to 6% of the loan amount and include:
- Appraisal fees to determine the home’s value.
- Title insurance protects against claims on the property.
- Legal fees for processing paperwork.
- Your lender charges loan origination fees.
Your Closing Disclosure document will provide a detailed breakdown of all closing costs before the closing date. Setting aside funds for these expenses is essential so you’re not caught off guard when signing the final paperwork is time.
3. Home Repairs and Upkeep
Once you own a home, you’re responsible for all maintenance and repairs. Unlike renting, where you could call a property manager for help, homeowners must cover the cost of any repairs or renovations. Whether it’s fixing a leaky roof, repairing the HVAC system, or general upkeep like landscaping, these expenses can add up over time.
Having an emergency fund is wise for preparing for unexpected repairs. Experts recommend setting aside 1-3% of your home’s value annually for maintenance costs. This fund will help you avoid debt if something breaks down shortly after moving in.
4. Furnishing Your Home
If you’re moving into a larger home than your previous one, you may need to purchase new furniture or appliances. This can be a significant expense, especially if your new home lacks essential appliances like a refrigerator, washer, or dryer.
Instead of rushing to furnish every room immediately, save gradually and prioritize the items you need most. Having a plan for these purchases will help you avoid overspending and allow you to enjoy decorating your new space comfortably.
5. Homeowners’ Association (HOA) Dues
If you’re buying a home in a community with a Homeowners’ Association (HOA), you must budget for monthly dues. HOA dues cover the cost of maintaining shared amenities like pools, clubhouses, and landscaping in the neighborhood. These fees vary depending on your area and the community’s amenities, ranging from $100 to $500 monthly.
HOA dues can be as expensive as a mortgage payment in some high-cost areas, so it’s important to factor this into your home budget. Ask about HOA fees before committing to a property, as these can significantly impact your monthly expenses.
Conclusion
Becoming a homeowner is an exciting milestone but requires careful financial planning. From the down payment to closing costs and ongoing home repairs, there are many expenses you’ll need to save for to ensure a smooth transition into homeownership. By understanding these costs and preparing for them, you’ll be better equipped to handle the financial responsibilities of owning a home. With innovative saving strategies and a clear budget, you can enjoy the rewards of homeownership with peace of mind.
FAQs
How much do most people save before buying a house?
Most first-time homebuyers save for the down payment and additional costs like closing fees. Ideally, saving 15-20% of the home’s price is a good target, though many buyers today put down less and use programs that offer down payment assistance.
How to save up for a down payment?
Saving for a down payment can be done by setting up automatic savings transfers, cutting back on unnecessary expenses, or even taking on a side hustle. To track your progress, it’s helpful to break down your savings goal into smaller, more manageable amounts.
What is the best account to save for a house?
A high-yield savings account is often the best place to save for a down payment. These accounts offer higher interest rates than standard savings accounts, allowing your savings to grow faster. You can also consider money market accounts or certificates of deposit (CDs) if you want more interest in your savings with limited risk.