When it comes to buying a home, more is more. That should be your mindframe when saving toward your purchase. You definitely need more cash than you think. There’s a downpayment of up to 20 percent, closing costs, moving expenses, unexpected repairs and the first mortgage payments. It’s enough to make your head spin. But better for it to spin now than to go broke later.
As CNBC explains, one of the biggest mistakes people make when buying a home is saving just enough to meet the bare minimum in expenses. It can be exciting buying a house, especially if it’s your first one. So you save and save and save, focused only on the least amount you need so that you can get those keys. However, the high of owning a home eventually takes hold, and unexpected maintenance costs kick in. If you’re barely making ends meet because you don’t have enough savings, normal life isn’t going to be that fun.
Instead of saving for the bare minimum, understand that you could end up shelling out anywhere between 10 to 20 percent of the price of your home, including the downpayment, every year. Do the math and save toward that number. You’ll be saving for expected costs, like your mortgage payments, utilities and taxes, and unexpected costs, like a broken AC unit or faulty refrigerator. In addition to that savings, you’ll want your emergency fund to be stocked with six months worth of salary.
Once you have that all cash saved up, you’ll likely be on solid financial ground even after purchasing a home. This might seem like a lot, but it’ll be worth it. You’d rather be financially stable and saving while living in an apartment than completely broke and living in a home.