Eric and I have gotten serious about saving up for a home, and have actually made it a priority next year. With all of our debt to be completely wiped out by January 2014, we’ve decided to make our number one goal in 2014 to be saving up for a home.
Realistically, this goal will probably take a few years to achieve. Three-bedroom homes in our area easily start around $500,000 and that’s for a fixer-upper. I doubt we’ll be able to save enough for that coveted 20% down payment, plus all the additional costs of buying a home, but we can at least start somewhere.
But it’s not even just the 20% down payment I’m worried about. There are so many additional costs when it comes to buying a home.
PMI: Without a 20% down payment, we would be on the hook for PMI, Private Mortgage Insurance, which is used to insure your lender—not even you! In case you default on your loan and you don’t have enough equity in your home, PMI insures your lender. The amount of PMI tacked on to your monthly mortgage depends on the size of your loan.
Home Insurance: In addition to your mortgage, you will also need Home Insurance, which isn’t a cost we currently have as renters. Luckily, there are great places you can find good insurance, like TD Home Insurance.
Taxes: Property taxes in southern California are 1% of the property price. In many cases, paying your property taxes is like an additional mortgage, hovering around several thousand dollars a year.
Emergency Fund: As much as you want to buy as much house as you can afford, you still have to take into consideration an emergency fund. And this emergency fund isn’t even in case you lose your home, but an actual home repair fund for house emergencies. Will you be prepared in case the heater breaks down or the air conditioner, or if you need a new roof?
All these additional costs of home ownership will definitely have to be taken into account when we start looking into actually purchasing a house.
