Homeownership: You Can Get There From Here
Is 2005 the year to begin saving for your first home? If so, prepare now - home purchase takes time, commitment, and (of course) money. Here’s what you need to get you there.
Whether your future abode will be modest or lavish, you’ll have to save for the same basic expenditures before you bid:
- The Down Payment: Today, homes can be bought with a mere three to five percent of the purchase price as a down payment. For anything less than 20 percent, though, you’ll have to purchase mortgage insurance or get a second, more expensive loan to cover the difference – meaning a higher monthly outlay.
- Closing Costs: Many first-time buyers underestimate how much closing costs can be. Running three to five percent of the home’s purchase price and usually paid up front, these costs include attorney fees, title insurance, appraisals, points, and tax escrows.
- Post-purchase Reserve Funds: Lenders often require proof that you have at least two months' worth of housing payments in reserve to protect against future cash flow problems. For personal security, you may want even more set aside.
- The Extras: If you buy a fixer-upper or want to put your personal stamp on a home before moving in, plan for the cost of landscaping, repairs, redecorating, and furnishings. And don’t forget moving expenses. These “extras” can add up very quickly.
So how much do you really need to save? The answer depends largely on the home’s purchase price, but interest rates, the type of mortgage you get, and your credit rating are also significant factors. Here’s an example to get you going:
|10% Down payment:
|3.5% Closing costs:
|2 Month reserve fund:
|Moving van and repairs:
If these figures sound daunting, don’t despair. Every new buyer must start somewhere. Determine how much you can realistically save each month by drawing up a budget. Simplify the savings process by having that sum automatically siphoned from your checking account and into a savings account with direct deposit through your financial institution.
Each month will draw you closer to your dream, so start today!