Buying a home for the first time is exciting, but many first-time homeowners fail to budget for the ancillary expenses. If you are thinking about buying a home, you need to be prepared for all the costs.
For large portions of the population, buying a home is seen as achieving The American Dream. However, it can certainly be an expensive dream to achieve. As well as being able to qualify for a mortgage, you will also need to have quite a bit of cash on hand in order to buy your first home. So then, how much cash is needed in order to buy a house?
To a certain extent, the amount that you would like to pay as a down payment is up to you. If you want to avoid any fees or private mortgage insurance, you will want to put down 20 percent of the purchase price of the home as a down payment. However, you would be free to put down as little as 3.5 percent with an FHA loan, or even 0 percent if you happen to qualify for products such as VA home loans.
If you are not careful, all of the closing costs associated with buying a house can sneak up on you without you noticing. As such, you will need to make sure that you have enough cash on hand to cover all of your closing costs when the time comes. Most homeowners will usually end up paying around 2 or 3 percent of the purchase price in closing costs. You may be able to ask the seller to cover a portion of this if they are willing to negotiate.
Home Maintenance and Repair
Though most new homeowners will remember to put enough money aside for the down payment and closing costs, many tend to forget to have some cash on hand to cover the inevitable home maintenance and repair costs that will arise over the first few months of owning the home. There are no hard rules for how much money you should have available to cover these issues, but a good rule of thumb would be to put around 1 or 2 percent of the home’s value into a savings account to be used in case of emergencies. If your home is new and still under warranty, you may be able to get away with putting less aside for maintenance. However, if your home is older and has a history of issues, you probably want to sock a little extra money away to cover any problems that may occur.
This article has touched on the three most cash intensive aspects of purchasing your home, but you can also expect other small expenses to crop up. For example, some utility companies have new account fees that you will need to pay. Though all of these costs can really add up if you are well prepared, and have plenty of cash on hand, you will be able to push through and get to enjoy your new home before too long.