Buying a home is one of the biggest commitments a person can make. Staying normal, I can’t think of anything that costs more than buying a home.
This is one of the most important parts of a person’s life, and subtle mistakes can be very expensive in this case.
I completely remember the problem that flashed in my head. How much money should I save before buying a house?
I am not an experienced real estate developer, but we can exchange opinions on the value and points of view on this, considering here my selection criteria that helped me in the final decision which I hope to have your opinion.
The choice of my home was mainly dictated by a financial rather than an economic issue. The mortgage I have on my shoulders is much less than the bank had approved me. Before taking this step, I thought about how much the monthly payment affected my salary, how to identify those small expenses that you find yourself having to bear once you live alone so as not to be caught unprepared.
There were a few surprises but for the most part I was already prepared and they hardly affected my lifestyle at all.
Not many, however, do it this way. People often dwell too much on the market price and on how much discount they can manage to get in the negotiation, without thinking of anything else. There are many other expenses that will have to be incurred when you live in a house and all these go to inflate the actual price.
Let’s examine them.
What are the costs for a house?
There are many expenses that a house carries with it and which at the beginning are not taken into account. All the expenses necessary for the maintenance of a house should be considered within a budget. And it’s always better to be prepared.
We have the following expenses:
The mortgage payments: This is the biggest and most obvious expense. The installments you are repaying to the home loan. Especially if you have entrusted yourself or you want to entrust yourself to a variable interest rate, you should be very careful about the fluctuation of the economy and the consequent increase in rates that will affect the monthly payment.
One important thing you can take advantage of is the availability of government backed loans. You can check if you are qualified for a USDA mortgage which can assist you with buying your first home without the need for a down payment.
Notary and bank charges: One of the most surprising when buying a house is the accessory costs of signing the contract. Between notary fees and ancillary bank charges for turning on the loan, consider having to pay at least 6,000 Euros more than the cost of the property.
Property tax (IMU): In some countries the tax on the building, if destined to a first home, is not paid unless the house is considered a luxury property. However, if you already own a second property, the annual IMU is mandatory on this and is calculated as a percentage of the value of the property. This tax is perhaps the heaviest in the evaluation of anyone who wants to allocate an income property, renting it.
Home insurance: It’s something you should think seriously about. Very often we think of home insurance as a cost. But in the face of a fairly contained expense, from the 400 Euros / year for an apartment to the 600 Euros / year for an independent house, you have the coverage and the reimbursement on possible damages should happen. Prices always vary depending on the province you live in and the size of the property.
The bills: Different types of houses have different costs in terms of bills. Buying an old house involves a very low energy class (usually G) which means higher energy consumption and therefore higher bills. For example, an apartment of 100 square meters in class C costs 250,000 Euros but will have heating bills for a hypothesis of 70 Euros per month.
Buying an independent house of the same size could cost you as much as 130,000 Euros but if you go to see the energy class you will notice that it is a G, which means that the costs in the monthly bill can also be tripled. And we talk about any user: gas, water and electricity in addition.
The furnishings: The photographs we see in real estate agencies can often be misleading. You get an idea of the house you are going to buy by looking at the photos and visiting it when it is still inhabited by the previous tenants.
You see it already furnished. But do not take into account that when you enter the new building, it will be completely bare and that part of the budget will have to be allocated to the purchase of all the furniture.
Repair and maintenance costs: Don’t forget about maintenance! Maintenance that can include many expenses such as:
- Garden cleaning and maintenance (if you have one)
- Plumbing maintenance
- Boiler maintenance
- Electrical system
- Wall painting
- Windows and doors
- And many others…
So How Much Money should I Save Before Buying a House?
The answer to this question is very difficult.
Whatever your budget, you should always keep in mind the total cost of a home. You can browse on Google and find the mortgage repayment simulators and get an idea of what the monthly expense will be, but you will have to add all the bill amounts for which unfortunately I haven’t found any useful site for simulating costs.
As you could see, there are several charges to consider as the total cost of a home.
It can be difficult to answer the question: “How much can I request for a loan?”
A realistic answer, the percentage accepted by the banks, is that the mortgage payment does not exceed 30% of your net monthly salary.
I personally have been far below this percentage. Because I didn’t like the idea of strangling myself with a mortgage far beyond my possibilities and I didn’t have to prove anything to anyone with a huge house that maybe I was struggling to maintain. I think I made a good deal, the area is nice and I also have a parking space in the private court!
Whatever your spending decision, start with a budget in mind before you go looking for a home. And go first to the bank to see how much they can grant you a loan to avoid unpleasant surprises during the negotiation.
Please note that the budget you give yourself does not have to be the same as the one the bank grants you. This is because banks usually give you much more credit than they could. Take it as a point of reference but try to stay under this figure.
See also: First time home buyer mistakes
And How Much Should I Give in Advance?
There is no simple answer to this question either.
There are two types of products on the market: a 100% mortgage at interest rates of around 4% at the time of writing, and standard 80% mortgage products with a more or less halved rate.
At first glance it is natural that it is cheaper to give an advance of 20% than to pay double the interest. The percentage also defines the amount of cash to be paid at the time of the contract in Euros.
The choice only depends on what your financial goals are, how long you want to finish paying the loan and how much you can actually afford.
If you don’t want to anticipate money because you think you can invest it in other more profitable ways or you want to keep your savings firmly in place, tip 100% (aware of the interest rate).
If instead you have the goal of paying the house in the shortest possible time or in the most comfortable installments possible, consider the idea of giving the advance.
If you are still in a hurry and if your savings exceed the famous 20% you can pay as much as possible in advance and borrow only a small amount to complete the loan in a very short time.
Author Name: Nadeem KTK
In my financial management career I enjoyed working closely with people in the financial industry. My job to prepare annual budget reports, track investments, advising on how much money to save at certain ages and implement cash management strategies that allow the company to reach its financial goals.