With the prices of homes in this present market, it leaves us contemplating whether or not we can even afford the down payment. Add to it the cost of taxes and home insurance and it can become a very stressful situation. If you are looking to own a house in the future, saving your money today with strategic planning can prepare you for the down payment in the timeline you choose. Before resorting to withdrawing money from your retirement savings or 401K, consider other options first.
The amount of your down payment will affect your savings plan. Before the housing crisis of 2008, lenders were granting mortgages without down payments. Today, very few if any banks will take that risk, even if your credit is superior. Calculate 20% of the home sale price to be safe and prepared. Don’t forget to include closing costs and miscellaneous expenses. You may be able to put down less money; however, any number below 20% of the sale price and you will need to purchase PMI (private mortgage insurance). This insurance protects the lender should you default on the loan. It is wise from a financial standpoint to put down the 20% and pass up the PMI. PMI adds unnecessary costs to your mortgage.
I watched part of Holmes Inspection on TV the other day and it was about this young woman’s experience in buying her first home. She bought a 20 year-old townhouse and had a home inspector give her the go-ahead to make the purchase. Within a week of taking possession of her new home, she noticed that something in her bathroom was causing water to leak through her kitchen ceiling. She hired a plumber to resolve the issue, but all the plumber did was make a large hole in her kitchen ceiling and then he told her he couldn’t find the leak so he wouldn’t be able to do anything. Nice!
When you move from an apartment into a house for the first time, you may be surprised by all of the extra costs associated with owning a home. Rent often includes some or all utilities but once you live in your own house you are stuck paying for everything! When my husband and I first moved from our apartment into our house, we discovered that our living expenses increased significantly. Water bills, natural gas bills, and property taxes weren’t even a part of our vocabulary. But that all changed when we bought our house.