Buying a house at any age can be particularly stressful. Knowing how much to put aside for a down payment, and understanding ways to reduce the risks of unforeseen expenses down the road are some of the biggest reasons for this, so today we’ll discuss some smart ways to save money when purchasing your first home:
Eliminate your debt first
If you haven’t entered the housing market yet and you still have debt, I highly recommend postponing your house hunt until all (or most) of you debt is eliminated. Not only will it be significantly harder to pay down your debt once you own a house, but having pre-existing debt will also affect the terms of your mortgage. Overall, you will be given a better mortgage rate if you’re debt-free.
Don’t confuse your loan amount with your spending amount
The bank will issue you an approval based on a number of factors, and give you a loan amount that you’re approved for. But, many first time home buyers confuse this amount with what they actually can afford. The bank doesn’t know that you spend a hefty amount on dog food each month, or that you may need to purchase a new vehicle later this year. Only you can say what you can actually afford for your mortgage expenses.
The best way to know what you can actually afford is to review your monthly income and expenses, and estimate how much you can afford to spend on a monthly mortgage payment.
Shop Your Home Insurance
Since there are many insurance providers out there, the price is certainly varied and that is why you need to shop around to find the best one. Comparison shopping home insurance is very much recommended since it allows you to save good money in the long run by simply getting quotes from various carriers. Price is one consideration but it shouldn’t be the only. Check the insurance company financial rating (www.ambest.com ). The goal is to get the best “value” for your premium, not just the lowest price.
Don’t forget closing costs
When you submit an offer on a house, and it’s approved, it’s a common mistake for first-time homebuyers to think that the down payment is all they have to pay. There are other fees involved in buying a house, and one of these fees is the closing costs. On average, closing costs can range from 2% – 3.5% of the total cost of your home purchase. Be sure to include this fee in your budget so that you aren’t surprised when you have to pay it.
Have a home emergency savings account
One of the biggest differences between renting and owning is that as the homeowner you are now responsible for covering the costs of repairs and upkeep. I recommend that new homeowners have some money set aside for house emergencies. This could include your roof leaking, your furnace breaking or having to buy new appliances.
It’s inevitable that these unplanned expenses will arise when you own a house, so be sure that you are prepared to cover these expenses as they come up. On top of saving for a down payment, it’s wise also to have some money set aside for these costs.
