Buying a home is no small endeavor. It can take months or years to save for such an investment, though entirely possible with the right planning and preparation. Here are some tips to help you budget for homeownership:
Run the Numbers
In order to set yourself up for success on the homeownership front, it’s critical to get a handle on the size and scope of the financial commitment. For starters, you’ll need to account for the monthly payment you’ll be making to the bank or mortgage company every month. Some people find that they might not be ready to make the leap just yet. While others might find that their financial situation allows for such a move.
Either way, it’s good to do your homework on the front end. The good news is that you don’t have to figure out these calculations on your own. Our mortgage calculator can help you determine what your monthly obligation might look like. This way you can at least have some ballpark figures in front of you so you can start to get serious about saving.
Plan for the True Cost
As mentioned above, there can be more costs to homeownership than meet the eye. In addition to the principal and interest, you should plan for the following:
- Annual homeowners’ insurance premium (if not already included in your monthly payment): The first year’s premium is normally paid upfront, at the same time as closing costs, but you’ll need to budget for the subsequent years.
- Maintenance: Keeping your home looking good inside and out costs money. For instance, you may need to invest in a lawnmower or budget for the cost of a service. There are incidental expenses like furnace filters, lightbulbs, paint, supplies, and other essentials.
- Emergency fund: When you rent an apartment, typically the maintenance costs are taken care of by the property owner. However, with homeownership the onus rests on you to address any repairs or disasters. What happens in the event of a flood or leaky roof? You should put away some money each month, to be used in case of such an unforeseen expense. Credit cards or loans can be a costly way to cover such bills.
It’s prudent to read up on the true cost of homeownership so you can make an educated decision. The best time to buy a house is when you’re financially prepared. You’ll benefit from taking an honest look at your financial picture, including credit score, available cash on hand, and desired timeframe.
Once you’ve done your due diligence, contact a loan officer in your area for a loan application and expect to provide some preliminary paperwork. Based on your situation, the lender may offer you a preapproval up to a specified loan amount. However, know that the details of your loan offer are likely to change based on a few factors. In the meantime, your lender will work with you to ensure all details are taken care of, so that come closing day it’s smooth sailing.