When you are buying a new home as a first time home buyer, you will need to take a deep dive into your finances and begin to learn exactly what you will need to make that purchase. A home is likely the biggest financial transaction you will ever make, so it’s a good idea to understand the process. You know you will need a mortgage, but how much money will you actually need to buy a house?

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Decide How Much You’ll Need to Put Down as a First Time Home Buyer

The thought of saving for a down payment is frustrating as a first time home buyer. A traditional 20% is the old standard, but for a $250,000 home, that means having $50,000 in savings, just for the down payment, is needed. However, thankfully, the idea of a 20% down payment being standard is now somewhat outdated. In today’s mortgage market, some programs require less, and it is possible to put no money down. Look for programs you may qualify for, such as a VA loan, USDA loan, HomeReady mortgage, or an FHA Loan. Some homeowners may also consider a “piggyback” loan, referred to as an 80/10/10 lean, because you will put 10% down, and your 90% mortgage will be split into one 80% loan and a 10% home equity loan. If you plan to put down less than 20%, you will have to factor PMI into your mortgage payments. When you are deciding how much you will use as a down payment, speak with a mortgage professional who can offer advice and give you the pros and cons of each option for your specific situation. In general, it’s a good idea to have at least 5-10% of the purchase price available for a down payment, no matter what.

Buying a New Home Means Closing Costs

Closing costs can be expensive. You will need to come to the closing with a checkbook ready to cover a long list of fees such as:

  • Lender fees (loan origination fees, application fees, credit check)
  • Prorated fees (taxes, homeowners insurance, HOA fees)
  • Home Inspection fees
  • Appraisal fees
  • Attorney fees
  • Transfer tax
  • Title search and insurance fees

Usually, closing costs are approximately 2%-5% of the price of the home, so keep that number in mind as you begin to budget.

Be Prepared for the Cost of Home Ownership

Although you need cash on hand for your down payment and closing costs, you do need to be careful not to wipe out your savings. Home ownership can be expensive, especially in the beginning if there is work to be done to make your new house a home. Replacing old appliances, handling maintenance, or dealing with emergencies can be costly. It’s a smart idea to start with at least 1% of the purchase price on hand to deal with anything that comes up.

Work with an Experienced Real Estate Agent

You may think that you don’t need a real estate agent until your finances are totally in order, but there is a big advantage to cultivating a relationship with an experienced real estate agent early in the process. Your agent can not only advise you on the houses available and the budget you’ll need, but they have a vast network of professionals who can help you navigate the financial piece of the first time home buyer journey. Your agent will have relationships with mortgage brokers, financial advisors, and other professionals to help you through the financial prep before returning to your real estate agent, ready to find a house you know you can afford.

Budgeting as a new home buyer can be complicated, but it’s also an exciting time. Working with the right professionals can help you start on the right path to home ownership. If you’re currently looking for a new house, contact Amberwood Real Estate today!