13. Skimp on the down payment
We know saving up for a down payment is difficult. Especially if you’re aiming for the traditional 20% drawdown. For many first-time home buyers, this is basically impossible. To counter this, many mortgage lenders now have stipulations for those who can save only 5% or 10% of the purchase price as a down payment. This may sound great for your home-buying efforts, but be mindful of the total cost.
Let’s consider a $500,000 home. A 20% down payment would mean savings of $100,000. This is not a small amount for most people. On the other hand, a 5% down payment is only $25,000. This is a far more appropriate yoga. However, you will have to pay the difference in the long run. Let’s take a look at a 25-year mortgage at 1.99% over a five-year term.
- The $25,000 down payment will leave you with a balance of $413,577 after five years. You’ll pay $45,106 in interest by that time.
- The $100,000 down payment will leave you with a balance of $335,010 after five years. You only pay $36,523 in interest.
12. Forgetting “Extra”
Real estate professionals estimate that you’ll need to set aside between 1.5% and 4% of your home’s purchase price for additional expenses. This may seem like a small number, but 4% of the $500,000 house we used in our previous example is actually $20,000. Really, not that little.
These additional fees can include things like deposits, property insurance, title insurance, legal fees, home inspections, relocation costs, and mortgage insurance (more on this in a minute). And none of this includes the expenses related to the general maintenance and upkeep of the house – landscaping, replacing appliances when they wear out, a new roof every 20 years, etc. When it comes to buying a home, the purchase price is rarely the only thing you need to budget for.
