We’re approaching the hottest time of year for the real estate market and it’s probably going to be intense this year for individuals and families thinking about buying or selling a property.
So – what are some of the key financial components/expenses to be ready for as you begin the home buying process? Check out the Money Hacks episode below as Alex reveals a bunch of ideas on how to budget and plan for homeownership. Let us know if you have any questions about the process.
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Video Transcript:
Hey, this is Alex Assaley, it's episode #90 of Money Hacks. Thanks for joining! One of the topics that I've been asked about quite a bit over the last month is home buying and preparing to buy a property. My younger sister just put a contract on a condo. So, congratulations, Simone!
So, while the real estate market's been on fire the last couple of years, they're still a lot of individuals and families who are looking to sell a property and buy a new one or first-time home buyers. We’ve talked about this in some of these videos in the past. The first piece of advice that I would give you is to make sure you find a really great mortgage banker or mortgage broker to help you through the process and the financial aspects of home buying. Additionally, work with a well-qualified real estate agent that can help you navigate the local marketplace and along with that, I think, make sure you are really detailed and understand the cost-benefit analysis of renting vs. buying or owning your current home to purchasing the next home.
I like to use a lot of different spreadsheets to do that. You could do it pencil and paper, but we want to make sure that as you go into purchasing a property, you have a really good understanding of the different expenses that you'll incur as part of that transaction. That'll happen to your overall cash flow plan. Now, most of us think about the home buying process as a really exciting period, looking at a bunch of different houses, but it can be really competitive too, especially in this marketplace and a lot of individuals and couples or families. Also know that when you're purchasing a property, you want to have enough money set aside for the down payment and closing costs, but there are some other expenses that I want you to make sure you keep in mind if you are putting together an analysis or a spreadsheet or a comparative little thing on the back of an envelope or the back of a napkin when it comes to home buying.
So, you know, there is the down payment aspect which typically is going to include putting some money into an escrow account, some taxes, and fees at the county level that go along with closing costs, and so most are aware of those expenses. But when you do get to that position that you found the place you like, you make an offer, it's accepted, you're getting ready to close. Remember that you're also going to have some one-time expenses, like moving expenses. When you get into the new property, there may be some things you want to purchase. So, we love for folks to set aside a little bit of their assets for some of those one-time expenses. From an ongoing perspective, your cash flow plan, your monthly expenses are going to change with respect to the mortgage interest payments that will include things like insurance, property taxes. You may also have changes or increases to your utilities, water, electric, gas, cable, and internet, for example. But the other thing that I think most people don't budget into their ongoing spending habits or cash flow is the maintenance costs of owning a property.
I've read a couple of different. blog posts, a couple of different experts in real estate who say you should be budgeting somewhere around 1% to 2% of the home value or the value of your property, value of your home as your annual maintenance costs. I've lived in my current house for a little over three years now, and I can say that that's pretty spot on. That tends to be every year we're spending about 1% to 2% of the equivalent of the home for maintenance and things like our HVAC, refreshing or painting different rooms in the house, other things of, you know, repairing parts of the exterior of the house, just the ongoing maintenance and wear and tear that you put into living in and loving your new property.
They're some good resources we have at MoneyNav.com on the home buying process. We love helping people kind of analyze and go through that journey to make the steps, to decide whether they want to purchase a new property, sell their current property, continue renting and the right decision is not a broad one. It's one that's unique to each individual, each sort of household. So, look forward to hearing from you and getting your thoughts or opinions. If there's anything else we can do, let us know. Take care. Thanks!