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down payment. Find out how much you should budget using a home loan affordability calculator and figure out how to save the amount you need. After all, the best way to save for a house is to formulate a budget that helps you work towards your house saving goals step by step. Soon enough, you’ll be turning the key and stepping into a home you love.
Step 1: Calculate Your Down Payment and Timeline
When figuring out how to save for a house, you may already have a savings goal and deadline in mind. For instance, you may want to save 20 percent of your home loan cost by the end of the year. If you haven’t given this much thought, sit down and crunch the numbers. Ask yourself the following questions:
What is your ideal home cost?
What percentage would you like to contribute as a down payment?
What are your ideal monthly payments?
When would you like to purchase your home?
How long would you like your term mortgage to be?
Asking yourself these questions will reveal a realistic budget, timeline, and savings goal to work towards. For instance, say you want to buy a $250,000 house with a 20 percent down payment at a 30-year loan term length. You would need to save $50,000 as a down payment; at a 3.5 percent interest rate, your monthly payments would come out to be $898.
Step 2: Budget for the Extra Expenses
Just like a new rental, your home will have fees, taxes, and utilities that need to be budgeted for. Homeowners insurance, closing costs, and property taxes are a few examples of cash expenses. Not to mention, the cost of utilities, repairs, renovation work, and furniture. Here are a few more expenses you may have to save for:
Appraisal costs: Appraisals assess the home’s value and are usually ordered by your mortgage lender. They can cost anywhere from $312 to $405 for a single-family home.
Home inspection: A home inspection typically costs $279 to $399 for a single-family home. Prices vary depending on what you need inspected and how thorough you want the report to be. For instance, if you want an expert to look at your foundation, there will likely be an additional cost.
Realtor fees: In some states, the realtor fee is 5.45 percent of the home’s purchase price. Depending on the market, the seller might pay for your realtor fee. In other places, it might be more common to contract a lawyer to look over your purchase agreement, which is usually cheaper than a realtor.
Appraisal and closing costs: Appraisals assess the home’s value and are usually ordered by your mortgage lender. They can cost anywhere between $300 and $400 for a single-family home.
Step 3: Maximize Your Savings Contributions
Saving for a new home is easier said than done. To stay on track, first create a savings account that has a high yield if possible. Then, check in on your monthly savings goal to set up automatic contributions. By setting up automatic savings payments, you may treat this payment as a regular monthly expense.
In addition to saving more, spend less. Evaluate your budget to see what areas you could cut down or live without. For instance, creating your own workout studio at home could save you $200 a month on a gym class membership.
Step 4: Work Hard for a Raise
One of the best ways to boost your savings is to increase your earnings. If you already have a job you love, put in the extra time and effort to earn a raise. Learning new skills by attending in-person or virtual training seminars or learning a new language could increase your earning potential. Not only could you land a raise, but you could add these skills to your resume.
Sometimes, putting in the extra effort doesn’t always land you a raise, and that’s okay! When getting a raise is out of the question, consider looking at other opportunities. Figure out which industry suits you and your skillset and start applying. You may end up finding your dream job, along with your desired pay.
Step 5: Create More Streams of Income
Establishing different income streams could help your house savings budget. If one source of income unexpectedly goes dry, having other sources to cut the slack is helpful. You won’t have to worry about the sudden income change when paying your monthly mortgage.
For example, creating an online course as a passive income project may earn you only $5 this month. As traffic picks up, your monthly earnings could surpass your monthly income. To create an abundant financial portfolio, there are a few different ways to do so:
Create an online course: Write about something you’re passionate about and share your skills online. Sell your digital products on Etsy or Shopify to earn supplemental income.
Grow a YouTube channel: Start a YouTube channel and share your skills to help others within your industry of expertise. For instance, “How to start a YouTube channel” could be its own hit.
Invest in low-risk investments: From CD’s to money market funds, there are a few types of investments that could grow your cash with low risk.
Step 6: Pay Off Your Biggest Debts
Before taking on more debt like a mortgage, it’s important to free up your credit usage. Credit utilization is the percentage of available credit you have open compared to what you have used. If you have $200 in debt, but $1,000 available on your credit card, you’re only using 20 percent of your credit utilization. A higher credit utilization could potentially hinder your credit score over time. Not only can paying off debts feel satisfying, but it could also increase your credit score and prepare you for this next big purchase.
To pay off your debts, create an action plan. Write out all your debt accounts, how much you still owe, and their payment due dates. From there, start increasing your payments on your smallest debt. Once you pay off your smallest debt in full, you may feel more motivated to pay off your next debt account. Keep up with these good habits as you take on your mortgage account.
Step 7: Don’t Be Afraid to Ask For Help
Whether your touring homes or want help adjusting your budget, don’t hesitate to ask for help. If you’re trying to figure out what your budget should look like, research budgeting apps like Mint to build a successful financial plan.
If you’re curious about additional mortgage expenses, your budget, or investment opportunities, reach out to a trusted professional or utilize government resources. Not only are they able to help you prepare for your next big step, but they could also help you and your finances in the long term.
Step 8: Store Your Savings in a High Yield Saving Account
While you may have a perfect budget and a home savings goal, it’s time to make every dollar count. Before you add to your account, research different savings accounts and their monthly yields. The higher the yield, the more your savings could grow as long as your account is open.
In September of 2020, the national average interest rate on savings accounts was capped at 0.8 percent. If you were to deposit only $100 into a high yield savings account with an APY of 0.8 percent, you could earn $80 off your investment over the year. This helps you save extra money by just putting your money into a savings account.
In Summary
First, set a savings goal to match your estimated down payment and mortgage monthly payments. Then add your contributions to a high yield savings account to grow your money overtime.
Don’t forget to budget for extra mortgage expenses like appraisal costs, home inspections, realtor fees, or closing costs. Keep in mind, your monthly utilities and fees may also be more expensive than your current living situation.
Prepare for the additional costs by increasing your earning potential and optimizing additional income stream opportunities.
Free up your credit utilization by paying off as much debt as possible before buying a house. Keep up these good habits throughout the length of your mortgage term.
When you purchase a home, you’re building a piggy bank for your future. Every month you pay your mortgage, you pay part of it to yourself because you own the home. Instead of paying rent to someone else, you reap your own investment when you sell. Most importantly, though, you’ll have a place that’s truly your own.
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Being a homeowner comes with a steep learning curve, and many first-time homebuyers struggle financially in their first year of owning a home. After years of saving for a down payment, they are blindsided by the extra expenses that come with buying and owning a house. It’s frighteningly easy to exhaust your cash reserves before you even move in.
Misunderstandings about the costs of owning a home can push people even further into financial distress. You can avoid a lot of this trouble by doing your research and determining how much house you can actually afford. Develop a sample budget to help you prepare for the cost of homeownership and the expenses that come along with it.
Hidden Costs of Homeownership
Here are some expenses prospective homeowners often forget to consider while they are shopping for a new place to live. Keep these figures in mind as you set your budget for a home.
Utilities
If you’re used to paying for utilities and other costs of living as a renter, it can be tempting to think that homeownership won’t alter your budget significantly — especially if your estimated mortgage payment will be less than what you’ve been paying for rent. However, your new home may use substantially more electricity and gas than an apartment, townhouse, or smaller rental house. Plus, your monthly rent may have included utilities like water or internet.
Mortgage Payment
Each month, most of your mortgage payment will go toward your principal and interest. However, you’ll also pay additional expenses such as property taxes, homeowners insurance and mortgage insurance. Insurance companies assess these expenses annually, but your lender will collect the fees each month with your mortgage payment and hold the funds in escrow. If you choose a home in a neighborhood with a Homeowners Association (HOA), you’ll also have HOA dues to include in your budget.
Furniture and Decor
New rooms could mean new needs. When you buy a house, the furniture you used in your rental may not be a perfect fit for your new home. Paint, curtains, furniture, and other decorative items can personalize your new home but can be a strain on your budget. If the thought of all new furniture and decor is overwhelming, choose one room to finish at a time.
Lawn Care
As a first-time homeowner, you may find yourself with a whole new set of outdoor responsibilities — mowing grass, trimming hedges, and keeping weeds at bay. If you buy a home in a neighborhood with an HOA, you may face strict lawn care standards. Whether you choose to do it yourself or hire a service to take care of it for you, lawn care can get expensive. If you go the DIY route, you’ll need to purchase equipment and supplies to get the job done, such as:
Lawnmower
Weed-eater
Hedge trimmer
Weed killer
Fertilizer
Grass seed
Pest control products
If you hire a company to take care of your lawn, expect to pay between $100 and $200 per month for basic care.
Renovations
Once the excitement of buying a new house starts to subside, your focus may shift to how your new home meets your needs. Unless you built a home with custom options, you may eventually want to update or renovate.
Renovations are becoming increasingly common among first-time buyers. According to a 2017 study by Houzz, first-time homebuyers spent an average of $33,800 on home renovations in 2016 — up 22% from 2015. Among all homeowners surveyed, the greatest motivating factor for renovating was a desire to customize their home.
Maintenance and Repairs
Maintenance and repairs can be a major budget killer for new homeowners. Many first-time homebuyers overlook the age of the roof, exterior paint, AC unit, and furnace when they buy a home. Even if you buy brand-new construction, you should begin saving for necessary maintenance updates and unforeseen repairs.
Don’t exhaust your savings to purchase your home; keep some money aside for necessary or unexpected repairs. Some financial experts suggest saving 1-4% of the home’s purchase price each year, depending on the age of your home.
Your homeowner’s insurance should cover damage due to fire or weather, but you’ll still need cash to cover the deductible, which could be anywhere from $200 to $2,000, or more. If you’re concerned about having enough cash on hand in the event of an emergency, look into plans with a higher monthly premium and a lower deductible.
A Sample Budget for Your First Year of Home Expenses
The price for a starter home will vary widely depending on where you live. Looking at average starter home prices around the country and landing somewhere in the middle, here’s a sample budget.
The following sample budget is an example of what your monthly home-related expenses would look like if you purchased a $200,000 home with a 5% down payment. For this sample, we used an online mortgage calculator and the average 30-year fixed mortgage interest rate of 5.10%.
Mortgage Payment
Monthly mortgage payment: $1599
Utilities and Lawn Care (based on national averages)
Gas
$82
Electricity
$183
Water
$40
Sewer / Garbage
$20
Internet / Cable
$147
Lawn Care
$150
Monthly utilities expense:$622
Recommended Maintenance/Repair Fund
Repairs/ Maintenance
$4,000 (based on 2% of purchase price)
Monthly repair/maintenance savings: $333
For this sample budget, your expenses would work out to $2,554 per month. That’s nearly $1,000 more than your monthly mortgage payment.
The Takeaway
Don’t make the mistake of asking how much house you can buy — instead, examine your income and projected expenses to figure out how much you can afford. If you’re buying a home with a spouse or significant other, be sure you’re on the same page.
An experienced real estate agent is an excellent resource. Ask lots of questions: inquire about the home’s roof and exterior, as well as appliances and heating or cooling systems. Your agent can also request information about HOA fees and utility usage from the seller.
For more information on home buying and selling visit Owners.com.
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All rights reserved. Intuit and QuickBooks are registered trademarks of Intuit Inc. Terms and conditions, features, support, pricing, and service options subject to change without notice.
All rights reserved. Intuit and QuickBooks are registered trademarks of Intuit Inc. Terms and conditions, features, support, pricing, and service options subject to change without notice.
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It’s no small task to hire someone to work on your house.
Even if you have a starting point — say, a neighbor’s recommendation for a great electrician — you’ll still have to put in the time to fully vet the contractor before handing over the master key to your front door.
Hiring a pro is a big decision, so make sure your decision-making process is spot on the first time.
Here are the four stages of hiring the perfect pro to finish your home’s to-do list:
DIY or not.
Every homeowner has a decision to make: Do you try to go it alone, or do you call in a professional to do it right the first time?
So when something breaks in your house, evaluate the damage on a scale of DIY to Don’t.
Sure, a little Drano might take care of the clog in your shower, but do you feel the same level of proficiency for installing your recently purchased dishwasher? Or for fixing an outlet that produces an inconsistent current?
And there are other considerations as well: You might feel comfortable cleaning your own gutters, but what if you didn’t have the right size ladder?
Thinking through these details ensure that you’ll be confident in your decision to spend the money to bring a pro into your home.
Reputation: It matters.
No matter the scale of the work you need done in your house — be it a clogged sink or a full kitchen remodel — the contractor you choose will be in your most sacred of spaces: your home.
You need to hire someone you can trust. So before you put money down on any home-service pro, ask your neighbors if they’ve ever hired the pro you have in mind.
(It’s helpful to get your neighbors’ perspectives, as they might be able to recommend someone who’s done work on the other houses in the neighborhood.)
Double-check everything online; many pros with long service records will have the same on review sites, so you’ll be able to back up his or her work history with pictures and reviews from sites like Yelp.
Price shop.
Trying to get the best price on your home projects goes hand-in-hand with investigating the reputation of the pro you’re hiring to do the work.
Beware of any prices that sound too rock-bottom to be true. Pros who know their market and have the most experience in a certain specialty will charge you accordingly.
Aspiring contractors with little experience will seem like a comparative steal, but think about the long-term effects: You may end up investing more in the long term if you bring in someone at a lower price and an equally low level of experience.
On the flip side, though, a high price tag isn’t an acceptable substitute for knowing a pro’s experience, and you’re much more likely to feel price gouged if you don’t get a handful of quotes from nearby pros to get an idea of the high, low, and median for your project.
Negotiate and schedule.
Not the other way around.
Within these negotiations should be some guidelines set around the timing of your project — an easy thing to predict if you’ve got a small repair to make, but a much tougher thing to do if you’re staring down a remodel.
Cost and time are typically tied tightly to each other, and you’ll want to keep an eye on the time in order to lasso in the price tag for the project.
And the best way to do this? Get it in writing.
Have both your signature and the pro’s on a tidy document outlining the time frame of the work and the cost associated with the labor and materials.
Tip: A reputable pro won’t ask you for more than 15% of the cost up front, so be wary of any contractor who wants your payment before the work has begun.
The bottom line.
Sure, it’s a lot to consider, and the process of choosing one might take awhile, so it’s best to proactively work on projects before they become a hazard to your life.
But your home — arguably the largest investment you’ll ever make — is worth getting the right pro the first time.
This post was provided by RedBeacon, the best way to find trusted pros for your home. Find out how much home services cost using their free price estimator. Stop overpaying for home repairs today!
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All rights reserved. Intuit and QuickBooks are registered trademarks of Intuit Inc. Terms and conditions, features, support, pricing, and service options subject to change without notice.
All rights reserved. Intuit and QuickBooks are registered trademarks of Intuit Inc. Terms and conditions, features, support, pricing, and service options subject to change without notice.
All rights reserved. Intuit and QuickBooks are registered trademarks of Intuit Inc. Terms and conditions, features, support, pricing, and service options subject to change without notice.