Home ownership can be a rewarding experience, from not having to answer to a landlord to turning a big part of your living expenses into an actual investment. And knowing that your rigorous savings efforts have finally resulted in an ample down payment is an unquestionably satisfying feeling. But before you start shopping for your new home, consider the following: To be financially ready for home ownership, you need more than just that initial 20 percent payment at closing. Here’s an overview of the savings you should have in place before you go from renting to buying.
An Emergency Fund
Before you sign that contract, make sure you have an emergency fund to pay for a full six months of expenses in the event that you’re unable to work. This fund should cover essentials like your expected mortgage payment, real estate taxes, homeowner’s insurance, car payment, groceries, medical costs (including insurance), utilities and property maintenance.
A Home Repairs Fund
No matter the age of your new home, expect to face both short-term and long-term repairs. Something as simple as a leaky pipe or faucet – which can happen out of nowhere – can cost you a few hundred dollars unexpectedly. And larger jobs, like roofing or heating system repairs, can easily exceed the $1,000-mark. Before you buy, set some money aside in a home repairs fund so you’re not caught off guard or forced to take out a loan.
Money for Closing Costs
Though you may be able to roll your closing costs into your mortgage (spreading them out into manageable payments), not every lender employs this practice. To be safe, put some money aside to cover your closing costs, which are typically 2 to 5 percent of a home’s purchase price. That means if you’re buying a $300,000 home, you’ll need an additional $6,000 to $15,000 up-front to complete your real estate transaction.
A Moving Expenses Fund
Unless you have a shockingly small amount to transport, there’s a good chance you’ll need to rent a moving truck or even hire professional movers to help you relocate to your new home. Truck costs vary with size and company, and remember you’ll be responsible for fuel. Professional movers can cost around $100 per hour for fairly local move (meaning, from a city to a nearby suburb), although this price could go up for heavy furniture and extra manpower. And while some local moves are completed in less than half a day’s time, others can take eight hours or longer.
A Down Payment for a Car
If you’re moving from a city to the suburbs, you’ll most likely need a car to go along with your new home. While you can opt for a used vehicle to lower this expense, be warned that you’ll probably wind up spending more on maintenance than you would with a new car. If you can afford a 20 percent down payment, your monthly payments will be much lower, saving you more money in the long run. Plan accordingly, and remember to factor your new auto loan payments into your monthly budget.