First of all, congratulations! Whether you’re shopping around for a bungalow in Bloomington or ready to purchase a chic loft in St. Paul, becoming a homeowner for the first time is big life achievement. Right now, you might feel overwhelmed with closing costs, appraisals and taxes — to name a few — and you’re not alone.
Almost half of all homebuyers are first-timers. But here’s something that could surprise you: Buying a home can cost an additional $9,000 in various expenses. Yikes! So, what exactly are you spending almost nearly 10 grand on? Well, there are unavoidable things like insurance, utilities and property taxes, which add up to an average of $6,000. Then there’s upkeep or maintenance (that might require an expert) like deep cleaning the carpets or getting a tree removed from your yard.
These expenses can go upward of $3,000.
But purchasing a new pad doesn’t have to be financially stressful. Knowing where to pinch pennies and save some cash will help keep your bank account happy so you can instead splurge on a fancy dinner at Manny’s Steakhouse. Priorities, right?
Before You Buy a Home
Start stashing money … like, yesterday. Unless you win the lottery, buying a home shouldn’t be an impulse purchase. It takes a lot of careful planning and saving to navigate the process. And we’ll give it to you straight — having at least 20 percent of your new home’s value to use as a down payment will save you from paying private mortgage insurance (a.k.a. another expense).
The median home price in Minnesota is around $225,000, so if you’re making a 20 percent down payment, that’d be $45,000 (whew!). If you start saving now, in a few years, it could make all the difference.
Re-evaluate your budget (multiple times). Maybe you’ve been approved for a mortgage or used an internet calculator to figure out your budget. According to the Federal Housing Association, around 30 percent of your gross income is realistic for a monthly mortgage payment.
But before you commit to a number, sit down and double check your budget. Take into consideration any debt you may have, along with fees related to buying a home, like paying your realtor or closing costs — the latter of which could set you back 3 to 6 percent of your new home’s price. Planning as much as possible leaves little room for surprises.
Set aside an emergency nest egg. Save money to … save even more money? Just remember, if an appliance breaks, it’s on you to get it fixed or replaced. A new refrigerator or washing machine can cost hundreds if not thousands of dollars. Having cash on hand will help you avoid credit card fees or increased interest from an unforeseen expenditure.
During the Home Buying Process
Nail down any unknown expenses. Sure, you can handle the mortgage on a 5-bedroom, 4-bathroom house, but can you pony up for the electric bill or home insurance premium each month? Important factors like these can often be overlooked in all the excitement of purchasing a new place. Even the upkeep for a swimming pool or a large lawn can be costly. If you fall in love with a property, make sure you factor these additional costs into your budget to ensure it’s still affordable.
Don’t skip a home inspection. When your budget is tight, you may think it’s cheaper to forgo this altogether. But a thorough home inspection is a critical step in buying a home. If there’s something majorly wrong and it’s overlooked, you could end up dishing out thousands of dollars on repairs, replacements or renovations. Following the lead of a qualified inspector as they check every nook and cranny will help you feel confident with your humble abode.
Compare insurance quotes. Once you’ve found the perfect home, you’ll need to protect it with solid insurance. Do your homework and figure out what works best for your lifestyle and budget. Keep in mind that the cheapest homeowners insurance isn’t always the best — you get what you pay for, after all. Decide on coverage options that you’re comfortable with if anything were to go awry. Paying a little more for dependable homeowners insurance now could help you save big in the long run — especially if you ever have to file a claim.
After You Buy a Home
Enlist friends or family to help. Don’t be shy! Borrowing a friend’s pick-up truck or trailer is an easy way to save hundreds on moving costs. Plus, asking your father-in-law to assemble a bedframe or your sister to organize the pantry can save you time and hassle, as well. Of course, be sure to reward them generously for their assistance (tickets to a Twins game?).
Wait to furnish your new home. If you’re tempted to upgrade your furniture and kitchenware all at once, try to hold off. Big ticket items typically go on sale throughout the year, and you can save some major dough if you wait a bit. Mattresses, for example, tend to get heavily marked down on Independence Day weekend. Do some research and determine the best time to buy specific pieces. Your bank account will thank you.
Buying your first home comes with a lot of emotions — excitement, fear, surprise and just a little bit of intimidation. With this checklist and a little planning, you can keep your wallet full while enjoying all the perks of being a new homeowner.
Jon Snyder is a Product Manager at Esurance, where he oversees countrywide design of property insurance products. Jon has over 25 years of experience in the insurance industry. He draws on his knowledge to write about a variety of home insurance topics—including tips for first-time homebuyers.
