To say the real estate market is crazy right now is an understatement! Limited inventory is driving up demand and has resulted in significantly increased home costs. However, on the flip side, interest rates that dropped to historical lows last year remain very low, which benefits buyers. Regardless of the market, it is important to understand the financial implications of buying a home.
Start Saving Early
Traditionally, home buyers were expected to have a down payment of 20% of the purchase price of a home. For many people though, that just is not feasible – and that’s OK! Most buyers should plan to have at least a 5% down payment ready when you purchase a home. And while that doesn’t sound like much, on a home that costs $300,000 that is a down payment of $15,000.
Closing costs are the fees and expenses you pay to finalize your mortgage, the amount is not included in the down payment and typically ranges from 2% to 5% of the loan amount. Closing costs can include title insurance, attorney fees, appraisals, and taxes depending on your situation. While there may be an option to roll the closing costs into your mortgage loan or negotiate the seller paying a portion of the closing costs, is it best to be prepared for these expenses if these other possibilities fall through.
While it may seem negligible to other costs associated with buying a home, renting a truck or paying movers shouldn’t be a forgotten expense in your budget. Nearly everyone will need to rent a truck or hire professional movers to relocate. This cost could range from a couple of hundred to thousands of dollars, depending on the distance traveled and services rendered.
What Can You Actually Afford?
Financial institutions are often willing to give you a mortgage loan for more than what you actually want to pay for. It can be tempting to purchase a home for more than you originally considered if you are offered a loan for that amount, but it could put you in a situation that makes life tough down the road. Many first-time home buyers make this mistake and end up “house poor,” with so much of their income going towards a monthly mortgage payment that other day-to-day expenses like clothing, entertainment, or even buying groceries become difficult to manage.
When deciding how much of a loan to take out, you need to look at the overall costs associated with the home, not just the monthly loan payment. How much are the property taxes in your chosen neighborhood? Homeowners insurance, maintenance, and improvements are also ongoing expenses that should be considered in your overall budget.
Set Aside Money for What Comes Next
You’ve found the house, won the bidding war, and you can’t wait to move in! But do you have money set aside for what comes next? Whether it was apparent to you during the showing or you discover items that need upgrading once you move in, will you have the funds ready to make those improvements? What about the ability to put your personal touch on the space? Rugs, fixtures, and paint can come with some big price tags.
The Bottom Line
If you’re ready to buy or just starting to save for your first home, I encourage you to reach out to your trusted financial for more information. WESTconsin Credit Union welcomes you to contact one of our knowledgeable Mortgage Loan Originators today. They can help you through the application process, and can provide conditional approval letters, which will help you better understand affordability and potential loan options. Buying a home is exciting, and feels even better when you’re prepared and knowledgeable navigating this major life event.
WESTconsin Credit Union
Locations throughout Chippewa Valley