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Buying a home is one of the main milestones along the journey of achieving the “American Dream,” but exactly how much cash do you need to have on hand to seal the deal? We’re going to dive into how much money you really need to save up to afford a house, the hidden expenses you may not have planned for and some tips for how to find your perfect house budget!
How Much Money Do I Need To Buy A House?
Short answer: you’ll need enough for a downpayment, closing costs, utility adjustments and other pre-paid fees like taxes.
Long answer: The exact amount of each of those expenses will depend on a number of factors, including the purchase price of the home, the length of your mortgage and anything you negotiate with the property’s seller. We’ll walk you through what each of those means for you and how it can affect your bottom line.
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Why Is Budgeting For A Home Important?
Remember that the down payment is a big part of the cash you’ll need to have on hand, but there are several other significant expenses that are paid at closing. Once you cough up that chunk of change, you’ll still need to pay for any closing costs, necessary inspections, and the first few months of mortgage insurance.
Conventional wisdom says that home expenses should only take up around 30-33% of your income each year. It’s important to figure out what you’re comfortable with as a monthly mortgage payment–including interest, mortgage insurance, and any HOA fees–and work backward from there. Once you’ve figured out about how much you’d like to spend per month, you can use Zillow’s Mortgage Calculator to see how putting down a larger down payment or a having a shorter mortgage term will affect your monthly bill.
Closing costs can run anywhere from 2-5% of the purchase price of the home, while a home inspection is typically around $300-500 in the Fredericksburg area. Typically, the County and the HOA that your new home is in will adjust whatever taxes or utility costs you might owe until the next billing period and you can pay those right at closing so you don’t have to worry about it until you get your next bill in the mail!
With all these additional expenses in mind, is your dream home still within your housing budget of 30-33% of your yearly income? Here’s how to figure it out!
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How to Calculate Your Bottom Line
For example, you’d like to make an offer on a beautiful $200,000 home in Spotsylvania County.
You’re putting 10% down, so 10% of $200,000 is $20,000.
Your closing costs are 2.5% of your loan amount, so 2.5% of $180,000 is $4,500.
Your prepaid fees, taxes and utility adjustments are about 2% of $180,000, so $3,600.
$20,000+4,500+3,600= $28,100
You’ll need to bring almost $10k to the table, above and beyond the down payment.
3 Key Tips for Calculating Your Home Buying Budget
1. You don’t pay your Realtor.
As a buyer, you pay absolutely nothing for your Realtor’s services! Yep, you read that right! All commissions are paid by the seller, which is why we didn’t include them in the calculation!
2. Do the math.
Play around with the mortgage calculator and see how putting more down or choosing a longer-term mortgage loan can effect your monthly payments.
3. Ask for help.
If it’s not an extremely competitive market, consider asking the seller for some closing cost assistance to shave a few bucks off the cash you’ll need to bring to the closing table.
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Keep reading for more about buying your first home:
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