5 Steps to Get Prepared to Buy Your First Home
At first glance, most First Time Homebuyers can afford the monthly payments on their home because it is similar to what they are paying in rent. However, a barrier to homeownership is often the magnitude of the savings necessary to use for a down payment and other costs associated with buying a home.
Buying your first home can be expensive. MSB recommends you plan for what you may need by starting with a strategy that includes the following:
- Save for a down payment of at least 20% of the home cost is the best option to avoid additional cost of Private Mortgage Insurance (PMI). It is possible to purchase a home with less than 20% but it may cost you more because of PMI.
- Budget for closing costs for items like property appraisal, attorney fees, title, settlement charges, and homeowner’s insurance premiums.
- Anticipate needing money for:
- Moving expenses – whether you rent a truck for friends and family to help, or have professional movers, this will be an expense of some measure.
- Misc. upkeep items – garbage cans, hose, lawn mower, snow shovels, rugs, blinds, window treatments, etc.
Save money for contingency items which may need maintenance, repairs, or replacement like appliances, plumbing, heating and cooling systems, roof and windows, etc. Here are some additional tips to consider:
- Create a budget: Make a list of all your monthly expenses (car and credit card payments, rent, utility bills, child care, etc.). Determine a spending limit for each category and then identify how much money is left over. Stick to your budget. MSB has excellent calculator tools on our Resources page to help. Check them out.
- Cut out unnecessary expenses: Identify items that you can do without until after you buy your home. You can put these savings toward your home fund on a consistent monthly basis. Go through your bank statements from the last few months and identify where you can reduce or eliminate unnecessary expenses. This may mean canceling your streaming subscriptions, bringing your own coffee to work, or switching to home workouts. Do you want to watch Netflix, Apple TV or buy your first home?
- Never buy a major item (car, appliances, etc.) until after you close on your home: It may seem easy to buy new appliances or furniture at a teaser interest rate with no payments for a period of time. However, many homebuyers that have had their home-buying plans scuttled by taking on additional debt prior to closing. Waiting until after you close your home purchase before making a large purchase may be in your best interest.
- Get a gift from a relative: More is better than not enough. A parent or relative may be able to provide you with additional funds to give you the peace of to make your home purchase go much more smoothly. You may need a letter stating the money is a gift.
This may be the biggest investment you ever make. Treat it that way!
At McHenry Savings Bank, we empower our clients by offering information, products and services to Go Fearlessly Forward™. Please call one of MSB’s Home Loan Experts today at (815) 385-3000 with any questions. Equal Housing Lender. NMLS# 630527. Member FDIC. FarmerMac Approved Lender. Be sure to follow us on Facebook, Instagram , LinkedIn and Twitter.