If you’re interested in becoming a first time homeowner, you’ve got a lot to think about. This is a big step in your life. Your home is likely to be the biggest investment you ever make – especially as property prices continue to rise.
Owning a home gives you a place to build your family, your life, and your wealth. Because of this, the transition from renter to owner is a truly pivotal time for you.
While the process of going from renting to owning a home is complex, don’t worry – we’re here to make things simple, and discuss some of the most important things you should know when buying a home for the first time.
You Must Talk to a Lender First, Before You Start Looking
So many times, first time homebuyers start looking for a home before they know their buying power. This is a mistake for many reasons, not the least of which is the risk of falling in love with a home that’s outside of their price range. Heartbreaking!
But an even better reason to talk to a Lender first is so that they can help you, a first time homeowner, FIND FREE MONEY. (Yes…free.) There are LOTS of First Time Homebuyer programs available for qualified buyers – you could be leaving money on the table if you don’t call a lender first!
You’re Going To Be Spending A Lot Of Money Up-Front (Maybe More Than You Think)
Once you’ve talked to a Lender, found how much money you can borrow, and you have your down payment saved, you may think you’re ready to start shopping – and you almost are! But there’s one more preparation to make: saving for the “other costs” of buying a home. The buying process itself is expensive and you’ll need more than just your down payment to get to the closing table. Some of the other costs beyond your initial down payment and mortgage can include:
- Earnest Money (generally 1% of the home sale price)
- Mechanical/Structural home inspections ($300-$500 is typical in Houston)
- Wood Destroying Insect inspection (required for FHA loans, and $90-$200 is typical in Houston)
- Option fee (generally $100-$500)
- Closing costs (generally between 2%-5% of the home sale price for Buyers in Houston)
For an example, if you’re buying a home that’s $300,000 and you’re putting down 10% ($30k), you’d need around 15% liquid capital ($45k) going into the process in order to cover all of the expenses through closing and any other unexpected costs. You may not use all of that fund at the end of the day, but it’s a good marker to go by. And, if you don’t use all of it at closing, then you’re already well started on the next big step…
You’ll Need To Start Saving For Home Emergencies
When you rent, you don’t have to worry about paying for (or dealing with) home emergencies. But when you go from renting to owning your own home, costs can add up fast and you’ve got to be prepared for it from the day you move in. Got a busted pipe? You’re on the hook for it. Clogged sink? Learn to fix it or call the plumber. Faulty electrical wiring? Better call a contractor (don’t try to do that one yourself!).
As a rule, you should be trying to save at least 1% of your home’s value for emergency repairs. So if you own a $250,000 home, you’ll want to have a minumum $2,500 repair fund ready in case of a broken water heater, plumbing or pipe repairs, roof damage, and so on.
Your home insurance may protect you from catastrophic damage, but you’ll need to take care of everyday maintenance costs on your own. So start putting some money aside, and be ready to spend it if your home needs some serious work.
You’re Going To Do More Maintenance
Speaking of repairs, you’re no longer going to be relying on any kind of property management company. This means you’re going to take care of things like lawn care, raking leaves, power washing your driveway & siding – things that your landlord probably used to take care of.
In some cases, maintaining the lawn and outdoors to a certain “look” isn’t optional. In fact, some HOAs (Home Ownership Associations) require certain levels of property care from owners – and failure to adhere to these guidelines can mean penalties and fines.
This also means you’ll need to buy a few more things – a lawnmower, rake, hedge trimmers, power washer, a tall ladder – and these costs can add up. So be ready, and understand that this is part of the deal when you’re considering first-time home ownership.
You’re Going To Spend A Lot Of Time, Money, And Energy – But Owning A Home Is Worth It!
Hopefully this article has helped answer a few questions you had about the costs of buying a home, before and after closing. As a reminder, Buffalo Bayou Realty offers Buyer Rebates to help with some of those costs, up to $24,000 in some cases. We’re here to help, and we want you to know that while home ownership requires an investiment of time and money, it’s well worth it in the end, we promise.