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Hi! Welcome back! This is Tom Leber with Homeward Real Estate’s Full Sale Team and this episode covers creating a savings plan to have enough liquid funds available for the purchase of your new home. We will discuss the specific costs associated with the purchase of a home in the upcoming Down Payment and Closing Costs Explained session. But you will benefit from starting your journey with establishing a savings plan.
Open a Home Purchase Savings Account
Create a specific environment to save and accumulate funds to pay for the various expenses required to purchase a home. This will make it easier to track your budget and much less likely to comingle funds with ordinary life expenses. Most banks can offer a savings, or other high yield short term accounts for this purpose.
Identify Sources of Funding
Hopefully, if you have made the decision to start putting funds aside for the purchase of your new home. This is a good time to inventory where you might be able to source funding for this purpose. Traditionally, people put money aside from their monthly income. You might also be able to receive a gift from parents or a relative. Make sure to account for any investments like stocks, bonds & annuities. There are even circumstances where you could utilize portions of your 401k savings to contribute to the purchase of a new home.
Set a Clear Goal
The amount of liquid funds needed to purchase is always variable and usually isn’t clarified until close to the end of the purchase process. Creating a ballpark estimate of these costs at the beginning will provide a target to base your budget on. You will usually never over estimate the amount needed.
Your down payment typically ranges from 3% to 5% of the home’s purchase price depending on what type of loan you will be utilizing). Closing costs can also be approximately 2% of the purchase price. Most moderately sized residential homes will require around $1,500 to perform the due diligence (inspections, appraisals & surveys). Moving expenses might require some additional research depending on if you are moving within the market, or from out of state/town.
Prioritize building or maintaining an emergency fund to cover unexpected expenses. Having an emergency fund can prevent you from dipping into your home savings for unforeseen circumstances.
Determine a Timeframe:
Set a realistic timeline for achieving your savings goal based on your budget and financial capacity. Work out the timeframe for purchase based upon your estimated budget and work from there.
Set up automatic transfers to your savings account each month. Automating savings ensures consistency and discipline in reaching your goal.
Cut Unnecessary Expenses
Identify non-essential expenses that can be reduced or eliminated and redirect the saved funds towards your home savings. Deferring a $5 coffee expense over 180 days could provide enough to pay for 2/3 of your due diligence costs!
Monitor Your Credit
While saving, monitor and maintain a good credit score, as it will impact your ability to secure a mortgage with favorable terms.
Consult with a Financial Advisor
Seek advice from a financial advisor to create a comprehensive savings plan and investment strategy tailored to your goals.
By carefully planning and adhering to your savings strategy, you’ll be better positioned to achieve your goal of homeownership. It’s essential to stay disciplined, regularly reassess your progress, and make adjustments as needed.
Thanks for your time! This is Tom Leber with Homeward Real Estate’s Full Sale Team… Have a great day!
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