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Saving For Your First Home

If you are a first-time buyer you have probably read countless news stories that have indicated how difficult it is for a first-time buyer or young person to buy their first home. Whilst it is true that it may be a difficult feat for some, it does not mean that it is impossible. So if you are thinking of purchasing your first home in the near or far future here is some pointers and advice that will help you on your way.

Research
The first step you will often need to take when thinking about buying a home, is doing some research. Look into the areas you may want to live in and get a rough estimate for housing costs. This will help you determine how much of a down payment you will need and give you a rough savings goal. On average, you may need as much as a 20% down payment for a house, although some mortgage providers may offer 5%, 10% and 15% mortgages. The larger a down payment you have, the less you will need to borrow and may open you up to better mortgage possibilities. So, it is better to start saving sooner rather than later.

However, try and determine what you can actually afford and seek to glean advice from mortgage providers and other housing professionals as they will be able to guide you accurately in regards to your situation and identify any other costs associated with buying a house that may crop up. Also, it may be worth having a look into any homebuying programmes that you may qualify for. In terms of what you can afford each month Every Dollar suggests: ‘the rule of thumb is to spend no more than 25% of your monthly take-home pay on your mortgage payment. If you tie up too much of your budget in your monthly payment, you leave yourself unprepared to face emergencies or embrace opportunities. We find that 25% (or less!) is the sweet spot.’

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Set a Goal
Once you know roughly how much you will need for a down payment you can start saving for a home. A down payment will often account for the bulk of the money you will need to save for a home, however, there are often other associated fees with purchasing a property.

For example, closing costs, Zillow estimates that ‘typically, home buyers will pay between about 2 to 5 percent of the purchase price of their home in closing fees. So, if your home cost $150,000, you might pay between $3,000 and $7,500 in closing costs. On average, buyers pay roughly $3,700 in closing fees, according to a recent survey.’ Your research should help you determine what sort of fees you will encounter during the homebuying process. It is then a good idea to add a rough figure to account for those fees onto your down payment estimate, this is your savings goal.

Determine when you would like to buy a house, in a year, five years, ten? Is this a plausible and achievable goal? If so look at your monthly income and see how much you can feasibly put away each month to save for your home. Start budgeting to help you save more at a time. Open a savings account with a good interest rate to put your savings into, not only will it be more difficult for you to reach (and thus avoid any spending temptations) but it will also earn a little money in the process.

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Look to be financially stable

Buying a home is a massive expenditure, and once you get past the mortgage, down payment costs and other associated purchase costs, you will need to run your home. Don’t take the decision to buy a home lightly, you want to ensure you are in the best financial position to both buy and run a home comfortably. Therefore, you should look to save more than your down payment, building a savings cushion that can help prepare you for most eventualities is a smart move.

Time magazine’s, Next Advisor writes: ‘But there are extra expenditures to consider as well, which can increase your costs after becoming a homeowner. Expect property taxes and insurance costs, which may be wrapped into your mortgage payment, but also account for increased utilities, moving costs, furniture, landscaping, and remodeling projects. And don’t forget the annual maintenance costs you’ll incur for your home’s upkeep, too. Set aside some cash for ongoing or unexpected costs like HVAC replacement or a leaky roof. Some years will require more costly maintenance than others, but you’ll want that reserve to rely on, [says Megan Donnelly, CFP and founder of Quabbin Advisors, a virtual financial planning firm] . She recommends saving 1% of your home’s value toward maintenance costs annually.’

It is also a good time to check on your credit store, and start to ensure that is in ship shape ready for the home buying process. You can look to improve your credit score in the time that you are saving for a home and cover your bases.

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