Have You Saved Enough To Buy a Home?
Deciding to buy a home is a huge step – and so is saving enough funds to make it possible. If homeownership is one of your goals, you need to start with a realistic budget.
Many homebuyers underestimate the out-of-pocket costs of a home purchase. They save for the down payment but misjudge the other expenses.
Keep reading for a breakdown of up-front costs and five tips to maximize your cash.
4 Expenses To Include in Your Budget
Factor these out-of-pocket expense categories into your budget as you determine your house price range.
1. Down Payment
In the past, there was an expectation of a 20% down payment for home loans. However, many of today’s mortgage options allow for down payment flexibility. In 2021, National Association of Realtors® reported first-time U.S. homebuyers average a 7% down payment, while repeat buyers average 17%.
As you decide your down payment amount, keep in mind that it may affect whether mortgage insurance is included in your monthly payments. Ask your lender for details so you can evaluate your short-term and long-term expenses.
2. Mortgage Points
This is an optional fee to lower your interest rate. It increases your initial out-of-pocket costs but reduces the amount of interest you pay over the life of the home loan.
Ask your lender to run loan scenarios with and without points so you can determine what makes the most sense for your financial situation.
3. Additional Closing Costs
Here are some additional fees you may incur during the real estate transaction. Specific fees vary by state, city, lender, and other servicers. Some costs are paid prior to the official closing date. You’ll want easy access to your funds as you get ready to put in your offer.
- Appraisal and inspection fees – some are required, and others are optional depending on your local laws and loan guidelines
- Lender fees – these vary but may include credit report, courier, origination, application, or underwriting fees
- Property-related fees – such as title search, title insurance, and survey fees
- Escrow funding – ensuring your escrow account can cover upcoming insurance and tax bills
Expect closing costs to run about 3% - 6% of your home’s purchase price. The average for a single-family property in the U.S. is $6,837 (including taxes).
4. Post-Purchase Expenses
Once you’ve bought your home, it’s time to make it your own. It’s a fun process, but the expenses can quickly add up!
Plan for the following:
- Repairs – such as paint, flooring, or even plumbing or electrical updates
- Moving – include packing supplies, vehicle rentals, and moving services
- Appliances – you may need to purchase a refrigerator or washer and dryer set
- Furniture – new furniture might work better with your new floor plan
- Decorations – budget for window coverings, mirrors, and other decorative elements
Maximize Your Savings
You work hard for your money. Here are five ways you can make the most of your savings as you get ready for your upcoming house hunt.
1. Open a High-Yield Savings Account
Interest can really add up – especially when it’s compounded daily. Shop around for a high-yield savings account that’s going to get you the best bang for your buck. It will help your home fund grow greater, faster.
Bonus tip: Don’t stop saving once you’ve bought your home. You’ll want an extra cushion of funds on hand for emergency repairs.
2. Get Pre-Qualified for a Loan
During mortgage pre-qualification, you provide your lender your financial details to help determine the purchase price and loan terms you’ll likely qualify to receive. No credit reports are pulled – so it’s quick and at no cost to you.
You can complete this step well in advance of your potential purchase. It’s a great way to validate your budget and ask questions about down payments and potential closing costs.
3. Secure a Preapproval
Starting to look at homes? Get preapproved for a mortgage to verify your budget and strengthen your offers.
Ask your lender to run a couple of loan scenarios so you can determine what works best for you – whether to reduce your down payment, pay points, or roll closing costs into your loan.
4. Get Real Estate Representation
There’s a reason that 87% of homebuyers use a real estate agent or broker. A professional will help you navigate the local market, negotiate for a fair price, and reduce long-term expenses.
Often, this comes with no out-of-pocket fees for the buyer. You may be tempted to use the seller’s agent to reduce your costs, but many professionals agree this doesn’t result in extra savings.
“There’s a common myth that if a homebuyer doesn’t have a real estate agent, they’ll save money on the home. It’s rare this will happen. The listing commission is decided at the time of listing.”
Cindy Welu, Welu Home Team
5. Ask Sellers To Cover Repairs and Split the Closing Costs
If your home inspection report indicates repairs are needed, ask the seller to cover the cost. You also can negotiate for the owner to split closing costs or pay for a home warranty to cover a year of household systems and appliance maintenance.
The success of these asks may depend on market demand (you’re more likely to get assistance from the seller during a buyer’s market) and negotiation skills – another argument for using a buyer’s agent.
“Do most buyers feel comfortable negotiating with a seller? Realtors® are professional negotiators. We try to get sellers to pay for items like home warranties, closing costs, and repairs.”
Scott Coggins, The Nashville Luxury Team
Axos Is Here To Help
If you’re preparing for an upcoming home purchase, let us know. Our team of mortgage experts is available to help you crunch the numbers and develop a realistic budget.
You can also take advantage of our rent or buy calculator and property valuation tools to validate your plans.
Happy home hunting!
Have You Saved Enough To Buy a Home?
This blog was published by Axos Bank on February 23, 2022, and last updated on October 19, 2023.