Buying A Home For The First Time

Tena Moore

The first thing you will want to know when you begin thinking about homeownership is whether it is more beneficial to rent or buy. Decide whether it makes better financial sense to rent or buy by comparing the cost of renting to the after-tax cost of owning. Also, see how rent increases and price appreciation can affect your decision.

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If you decide that buying is your most favorable option, then you will want to figure out whether you are ready. This includes reviewing all assets and liabilities and developing a budget that encompasses a savings plan. In addition to your checking and savings accounts, you can figure in any CDs, stocks, mutual funds and/or savings bonds. Retirement funds such as a 401k or an IRA can be counted toward the payment reserve requirement.

Saving for a down payment on a home can be one of the most challenging tasks you will face in homeownership. When planning the purchase of a home, you will need to save for three up-front costs. The down payment is the largest part and is a percentage of the total purchase price of the house. Closing costs include all fees required to execute the sales transaction, such as attorney fees, title insurance, appraisals, points and tax escrows.

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Finally, homebuyers need to demonstrate that after paying the down payment and closing costs they will still have some reserve funds to protect against short-term cash flow problems. Preferably, a homebuyer will have at least three months’ worth of housing payments available after closing. These funds remain in the homebuyer’s savings for unexpected expenses, which always seem to pop up around this time.

By subtracting all current financial assets from the amount of funds needed to purchase a home, one can determine how much needs to be saved. A cash flow budget should then be prepared to determine how much can realistically be saved monthly.

With some discipline and creative strategies, you are on your way to homeownership!

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