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  • Smart Planning for Your First Home Purchase

    Home-Cleveland - Picture of a man handing over the Keys to a new home

    Buying Your First Home?

    Ok, you’re ready to buy your first home, you anticipate opening your door, making dinner in your kitchen and relaxing in your den. It is a big financial commitment, but you are prepared.  You have the down payment, and you can cover the monthly mortgage outlay.  As a first time homebuyer, you may think you are financially ready.  Are you?

     

    The down payment and mortgage calculations are good start, but they are insufficient.  Longtime homeowners know that there are a host of additional expenses associated with a house.  To avoid being caught by surprise, first make sure that your budget can handle all of these common house expenses.

     

     

    Initial Purchase Costs

    1. At a price of between $200 and $600, a home inspection may seem costly.  However, it is well worth the cost.  In order to properly budget, you need to know the likely repair costs for anything in the house that currently needs to be fixed.

     

    2. You will also need to pay for closing costs.  These typically range from $2,000 to $5,000 and include fees for items such as the survey, appraisal, title search and credit report.

     

    3. Don’t forget to include moving expenses as well.

     

    Monthly Payments

    Your lender’s monthly bill will include more than just your mortgage.  Be prepared for lender to bundle these additional items into your payments.

    1. Private Mortgage insurance (PMI) is required for all buyers who put down less than 20% on their house. Generally, annual PMI costs are between 0.3% and 1.15% of your loan value.  For a $150,000 house, this adds about $37 to $145 to your monthly bill.

     

    2. Home insurance will vary depending on the value of your house and the state in which you live. Normally, it ranges between $500 and $1,500 annually, so you can expect to pay another $40 to $125 monthly.

     

    3. You also need to pay property taxes.  The rates are set by the state, and they range from about 0.3% to 1.8% of your home’s value.  For a $150,000 house, property taxes will cost about $35 to $225 each month.

     

    4. Your first utility bills can be a shock.  Check the previous year’s electric, gas and water bills in order to know what to expect once you move in.

     

    New Purchases

    A first time homeowner usually does not have the tools and appliances that are needed in a house.  You may find yourself shopping for a lawn mower, washer, dryer or even a refrigerator.  Whether or not you are handy, you are going to need some basic repair and yard tools.

     

    It is likely that your new house is larger than your old apartment, leaving you with some empty rooms once you move in.  Tables, chairs, sofas and lighting can be expensive.  Window treatments will also add to your bill.

     

    Before moving in, most people want to freshen the house up.  Painting, cleaning carpets and refinishing floors can also strain your budget.

     

    Expect The Unexpected

    The expense of repair and maintenance over time may be the most underestimated house cost.  The roof, furnace, air conditioner and water heater will all need attention at some point, and these problems are not minor.  Even the cost of smaller repairs will add up quickly; expect to pay a minimum of $100 for any service call.

     

    To prepare for the unexpected, it is best to save ahead.  One common rule of thumb is to plan to spend, on average, 1.5% of your home’s value annually.  This is $2,250 for a $150,000 house.  Another common approach is to assume that you will spend one dollar per square foot.  This totals to $2,000 annually for a 2000 square foot home.

     

    Purchasing your first home is an exciting and joyous prospect.  With smart planning that includes all of the associated expenses, you can look forward to enjoying your first house for years to come.
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