Confession: this series of blogs on buying your first home has NOT been easy to write. Want to know why? Because there is SO MUCH INFORMATION to share. Buying a house is just so darn complicated that is not easy to sift through all of the great tips, ideas, and hints out there to compile the best resources for your reading pleasure. But I will not give up! I will break down the multi-step process of home-buying into easily readable, semi-enjoyable narrative quips if it kills me!
I thought that the next post for this series would be a sort of “how-to” series of instructions of how to work your way through the home-buying process. You read the first post, decided you were truly ready and committed to becoming a home-owner, and now you need to know how to do that. So I tried to write a list of things such as “get pre-approved”, “get a realtor”, etc.
But while I was trying to sort all of that out, I realized that the pre-approval step was about 20 times longer than any other. Mainly because I was trying to cram all of this stuff about how much money you might need saved up for a down payment and other closing costs into it. It simply could not be condensed into 2 or 3 quick sentences. Therefore, I have decided to give saving its own post. So here it goes . . .
You will need to save up a lot of money to buy a house. A LOT!!!
Here’s a quick run-down of the different kinds of expenses associated with buying a house:
EARNEST MONEY OR DEPOSIT – This is a deposit you make on a home when you submit your offer to the seller. It is used to show that you are serious about purchasing the home. In most cases, the earnest deposit is applied to the down payment if/when your offer is accepted. If you were to back out of the sale, you may or may not get these funds back, depending on the terms of your contract.
DOWN PAYMENT – This is a percentage of the total cost of the home that you must pay when you close on the purchase and attend the settlement. In some cases this can be as much as 10-20% of the total cost of the home. If you were purchasing a $200,000 house, that might mean between $20-40,000. In the case of many first-tome home-buyers, the down payment is lowered to between 3-5% which would make a down payment on the same property around $7,000.
CLOSING COSTS – These expenses are any number of additional fees that you might incur during the purchasing process that would not being included in the mortgage financing of your home. They include things like Real Estate Broker Commission/Fees, Appraisal Fees, Title Fees, Inspection Fees, etc. In general, they tend to be around 3-4% of the total cost of buying your home.
As you can see, buying a house is not cheap. Even if you have perfect credit and have shopped around for the lowest mortgage rate possible, you will still need money in the bank before you can make a purchase.
My recommendation? Ask your financial institution for help! Visit your credit union or bank to speak with the mortgage officer. You can get pre-approved for a mortgage without actually committing to buying a house. What it will do is give you an idea of how your credit looks, as well as an estimate of how much house you can afford. Knowing that number will give you an idea of how much money you will need to save for a down payment, closing costs, etc. If you have enough put away to begin the actual house-hunting process – great! Go out there and start hitting up open houses. But if that amount is still a little out of your reach that’s ok, too. Now you have a tangible goal in mind of how much money you will need to save to purchase your first home. Saving is always easier when you have a concrete goal in mind.
Next up . . . the last (hopefully) step to becoming a first-time home-buyer – going out there and actually picking a house! Coming to the Kelsey at Casco Blog soon 🙂