Purchasing your first home is a significant milestone, and it comes with plenty of expenses. Not only must you factor in the down payment, closing costs and other upfront charges but you’ll also need to set aside money for monthly payments and property taxes as well.
There are various national and state programs that can assist with these costs. Some focus on making down payments easier to meet, while others cater to specific types of homebuyers such as veterans or teachers.
1. Down Payment
Saving money for a down payment on your first home is an essential first step in entering the housing market. How much you should save depends on both your personal budget and aspirations for owning a property.
A down payment is an upfront contribution you make toward the purchase of a house, usually paid in cash. It serves as your initial investment and may help you qualify for mortgage loans with lower interest rates and avoid having to pay mortgage insurance or other fees.
Furthermore, a larger down payment can reduce financial strain over the course of your mortgage. This is because it lowers your monthly payments and boosts the equity in your home.
Numerous down payment assistance programs (DPAs) exist across the country, many tailored specifically towards first-time buyers. Some are grants that don’t need to be repaid, while others are loans which must be repaid when you move, refinance or pay off your main mortgage.
2. Closing Costs
Closing costs can be an unexpected surprise for first-time homebuyers when it comes to purchasing a property. These fees may range anywhere from 2% to 5% of the purchase price depending on where you reside and your mortgage lender’s policies.
Closing costs are typically paid out-of-pocket and not rolled into the mortgage loan, but they can add up quickly. That’s why it’s essential to save enough money in advance for both your down payment and closing expenses.
To accurately estimate your closing costs, obtain a good faith estimate from your mortgage lender. These documents, known as a closing disclosure, should be reviewed at least three days before the scheduled closing date.
3. Mortgage Payment
Saving for a mortgage payment, whether you’re a first time home buyer or looking to purchase an additional property, is an essential step in the financial planning process. Make sure you have enough saved up for your down payment, closing costs and monthly mortgage payments.
Your mortgage payment consists of several components, such as loan principal (the amount borrowed from the lender), interest, taxes and insurance. By lumping these costs together into one payment, it becomes simpler for you to manage them all at once and stay organized.
Saving up at least 20% of the purchase price before applying for your mortgage helps you avoid having to pay private mortgage insurance (PMI) and having a higher monthly payment.
4. Property Taxes
Contrary to renting, first time home buyers must pay property taxes in order to cover the upkeep of their new residence. Furthermore, these payments support schools, roads and fire departments alike.
Taxes vary by jurisdiction, typically being included in your mortgage payment.
When purchasing a home, it’s wise to know how much property taxes you’ll owe and when. Doing this gives you the peace of mind needed when negotiating with your real estate agent and making an informed decision regarding your next purchase.
Thankfully, New York offers numerous resources to assist you with navigating your new home’s tax code. This includes exemptions, credits and other perks that could save you some cash. To determine what’s best for you, consult a real estate attorney and your banker to find the solution that fits best.