I found a very helpful article on www.apartmenttherapy.com about first-time home buying and the budgeting headaches we, and first-time buyers oftern experience (or forget) and thought I'd share. I've also included some tips from personal experience wth buyers I've helped. Remember, if at any point you need advise or assistance, I'm always here to help you.
The countdown to buying your first home is innately defined by one thing: the balance in your savings account. Unlike car loans and the too-expensive shoes you put on your charge card, you can't exactly buy a home with zero money down, so most people who have their sights set on homeownership begin by saving for a (sizeable) down payment.
The goal number at the end of the down payment progress bar will vary wildly depending on your location and your financial health—somebody budgeting for a 3.5%-down FHA loan in Pittsburgh will have a much, much smaller down payment goal than somebody looking to put 20% down (to avoid paying for mortgage insurance) on an apartment in NYC. Like, a lot smaller. But in either case, the objective is the same: Stash away cash until you have enough for your down payment. Then you're ready to buy a house. Right?...
Don't Forget About Closing Costs
It's easy, as first-time buyers, to fixate on just the cost of your dream home. But the actual process of buying a home costs money, too, above and beyond the purchase price—usually between 2 percent to 5 percent. So if you're looking to put 5% down on a $300,000 home—$15,000—you'll have to come to the table on closing day with potentially double that amount, around $30,000 or more.
What's Included in Closing Costs?
There are a lot of moving parts involved in making your future home yours, and many people along the way who make their livings from buying and selling property. Here's some of what you can expect to shell out for, as a buyer:
- Fees related to obtaining your loan from your lender, including credit report costs, loan application fees and loan origination fees
- A fee to obtain the title to the home and title insurance
- Attorney's fees
- The cost of a home inspection
- An escrow account, which is essentially the buyer (you) paying for several months' worth of property taxes and homeowners' insurance up front interest on your loan from the closing date to the end of the month
- Prorated homeowners' association fees, if your property is part of an HOA
- The particulars of your closing costs will depend on your unique situation, including where you want to buy and what sort of agreements you make with your lender or build into your contract with the seller.
When you're serious about buying a home, your realtor and lender will begin to walk you through what closing costs you're likely to pay in your position. But if buying a home is on the horizon for you, the best thing you can do right now is to begin to budget for the closing costs. If you've set a goal for your down payment—on paper, through your budgeting software or just in your head—bump that amount up, by at least 2 percent of what your dream starter home will cost.