Are you saving up to buy your first house? A traditional
mortgage typically requires that you make a down payment of 20%
of the purchase price. Even after the bursting of the housing
bubble, there are options to purchase a house with as little as
three percent or even zero down. Generally, placing less than
20% down will increase your costs in a handful of ways
including higher interest rates, private mortgage insurance
and, of course, a larger mortgage payment.
In order to keep your costs as manageable as possible, it is
generally recommended that you make a 20% down payment.
However, managing to save 20% may seem daunting. If you are
planning to buy a house for $250,000, that's $50,000 that you
will need to save.
You should start by calculating how much your expenses will
be after you purchase the house. Many first time home buyers
are surprised at all of the expenses that accompany the house.
Of course, you will have a mortgage payment, which may be more
than your rent. Don't forget property taxes which average 1.38%
nationwide.
1
On that same $250,000 house, that's another $3,450 per year
that you will have to budget, or $287.50 per month. Check with
your local county to find out rates in your area. Common
expenses also include homeowners insurance and routine
maintenance. If you are buying a condominium, townhouse or a
home in a planned community, you will likely have homeowners
association dues. Also, consider how much you may wish to
upgrade or beautify the property.
Home ownership comes with some tax benefits, but don't count
on those tax deductions to offset the increase in your housing
budget. Many families who were using the standard deduction
prior to buying a house find that deducting their mortgage does
not reduce their taxes as much as they thought.
Now that you have calculated how much your monthly housing
costs are going to increase, you should begin to set aside that
additional amount. This is a double win in that it will force
you to live on the same budget as you will have after you buy
the house while also forcing you to increase your savings. You
will also learn if you are ready for the change in your budget
that buying a house will bring. If you find that you have
difficulty living on this tighter budget, you may need to
rethink if you are ready to buy a house or consider a less
expensive house.
Buying your first house is a major accomplishment. Make sure
you are prepared so that your American dream does not turn into
a nightmare.
1
http://www.nytimes.com/2007/04/10/business/11leonhardt-avgproptaxrates.html