The Thrifty Homebuyer: How to Budget for Your First Home
Buying a house is the single largest investment most of us will make. For many new homeowners, it’s a joyful experience, earned through hard work, careful planning and prudent saving. For others, the financial impact of home ownership – and the extra costs they didn’t plan on – puts a damper on buying a home, creating only stress, worry and financial struggles.
If you’re considering buying your first house, start here with five budgeting tips. A little bit of knowledge, planning, and saving will go a long way in ensuring a happy home-buying experience and financial wellbeing for years to come.
1. Start with a budget: If you haven’t yet created a budget of monthly income and expenses, there’s no time like the present! Putting your budget on paper will help you determine whether you’re ready to assume the costs of home ownership while also building a good habit of record keeping.
2. Get pre-approved: Pre-approval from a lender is based on your income, debt and credit history. Working with a mortgage lender to get pre-approved will put you in a better position to make a serious offer on the house you want while also helping you focus your search on homes you can afford.
3. Understand the real costs: Many first-time homebuyers look no further than their monthly mortgage payment to determine whether or not they can afford a home. This is the most dangerous – and most costly – mistake a buyer can make. In addition to monthly loan payments, homeowners assume total financial responsibility for repairs, utilities, property taxes, insurance and seasonal maintenance.
4. Save up for maintenance expenses: In addition to budgeting for your loan payment, taxes and insurance, it’s important to save money for home maintenance. Murphy’s Law dictates that your air conditioning will fail in August, but having a slush fund for repairs and emergencies will make this a whole lot less painful. A good rule of thumb is to set aside 1-3 percent of the purchase price of your home. For example, if you paid $200,000 for your house, plan on $2,000-$6,000 in annual maintenance expenses.
5. Location, location, location: Consider focusing your search on neighborhoods in good school districts. Whether or not you have school-aged children, school districts are a top priority for many homebuyers, which will boost your property value should you choose to sell down the road.