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Happy Monday everyone! Today is another Moving Monday post and today’s post is going to be super glamorous – it’s all about finances. I figured since tax day is tomorrow I would talk money 🙂 This is a super broad overview and as always this is my opinion – so don’t take this as hard financial advice. This is my perspective and I’m obviously not a professional!
Before buying a house – or even renting! – there are some questions you should ask yourself. I wanted to break them down into a few sections – general budgeting, down payment, and other costs to consider. Buying a house is a pricey endeavor and getting ahead of it is essential. It’s never to early to start planning or saving!
Budgeting
How much can you afford on a mortgage every month? If you’re renting you probably have a good idea of how much you spend on rent, utilities, and renters insurance each month. As a rule of thumb, don’t spend more than 30% of the money you take home after taxes on your housing costs. This means mortgage, insurance, utilities, cable, etc. I try to stay closer to 20% of our monthly costs so we have more flexibility to save or spend as we see fit. If you don’t have a budget you won’t know how much you can spend every month! So create one now (more tips here)!
Down Payment
The gold standard in down payments is 20% of the cost of the house. This means that for a $200,000 house you will need to have a $40,000 down payment. That is a big chunk of money! It’s daunting when you think about it, but there are some steps you can take now to help in the future.
Start setting aside a chunk of money each month – this might be only $100 but it will add up! Once you know what you’re spending each month (since you just created a budget, right???) you can find areas to save more. I bet you could bring your own lunch or buy less coffee each month! All those small changes will add up over the months and years – trust me. Save as much as possible each month while still contributing to your emergency fund and retirement accounts.
You can have a down payment that’s less than 20% but there will be costs. A FHA loan requires only a 3.5% down payment, but you might pay higher interest rates – which will cost you thousands over the long term. FHA loans do have a monthly premium for insurance and you do have to pay a sum up front to cover the insurance as well. You could also put less money down and pay Private Mortgage Insurance (PMI), but that is a monthly fee that will also add up. This isn’t to say that you absolutely have to have 20% to buy a house, but you will have extra monthly costs if you have a smaller down payment. You can learn more about FHA loans here and conventional loans here, and this is a comparison between the two types.
Other Costs
So you might have money for a down payment but what about closing costs? I know that I saw people negotiate closing costs on HGTV all the time but the market is so insane right now that that doesn’t always happen! Our closing costs will be 3%, so that’s another $6000 is you have a $200,000 home. You can obviously negotiate closing costs but know that the seller has the power and might pick someone who didn’t ask for them. With multiple people making bids on EVERY house it’s important to be able to cover those costs!
Closing costs and down payment are the big costs to think about, but the smaller ones add up also! If you are getting a larger house you will need to buy more furniture – that’s not cheap! Do you have more bedrooms to furnish and a second living space? Do you need to remove wallpaper or paint every room? You definitely don’t need to do all of this day 1 but it will be a consideration.
Also be sure to ask what appliances “convey” (or stay) with the house. In Minnesota all appliances will stay, but in Kentucky the kitchen appliances stay but not the washer/dryer. It varies by state but you can’t live somewhere without a fridge (for example) so be aware of those costs too.
Are you going to be moving a long distance? U-haul is great but that will easily be $1000 for a cross-state move with a big truck. If you want to use professional movers you will need to budget for that as well!
In Conclusion…
Buying a house is a lot of financial work and then a way to save/invest every month. Just by paying your mortgage you are investing your money in a property – way better than letting it sit in a savings account or spending it every month. I kept thinking our down payment would just disappear (and that’s scary!) but instead we’re building instant equity and saving every month.
I hope this post is helpful and not overwhelming! I’m excited to be a first-time home buyer and I can’t wait to make a house our own. I love our apartment but I’m excited to not have neighbors downstairs. I’m also SUPER excited for a garage!! No more bikes in our apartment 🙂
