Even though it feels good to be here at last after all the searching and purchasing, the work of budgeting and financial planning does not end when you get the keys to your new house. How do you safeguard your investment in your first home?
Of course, everything you have already done should aid in the process. You needed to figure out how much house you could afford, save up money for a down payment, and submit an application for a mortgage. This can be a painful and stressful process. As per a survey conducted by FREE and CLEAR, 27.55% of home buyers preferred the mortgage acquisition process over seeing a dentist or having a physical examination.
Continue reading to find out what you should do next to maintain the momentum that will help you reach this crucial financial milestone and create a solid foundation for the future.
Congratulations on purchasing your first home! This is a significant milestone in your life, and it’s essential to plan for the financial responsibilities that come with homeownership. One crucial aspect of this planning is ensuring you have enough money saved after closing to cover unexpected expenses and maintain financial stability.
This guide will delve into the question of “how much money should you have after buying a house?” We’ll explore expert recommendations, analyze different saving strategies, and provide insights into building a strong financial foundation for your new homeownership journey.
Understanding the Importance of Savings After Buying a House
While the excitement of moving into your new home is understandable, it’s crucial to remember that buying a house is just the beginning of a long-term financial commitment. Unexpected expenses can arise at any time, and having sufficient savings can help you navigate these challenges without jeopardizing your financial well-being.
Here are some key reasons why having savings after buying a house is essential:
- Covering unexpected expenses: Homeownership comes with its fair share of unexpected costs, such as appliance breakdowns, roof repairs, or plumbing issues. Having a financial cushion can help you address these emergencies without incurring debt or dipping into your emergency fund.
- Maintaining financial stability: Unexpected job loss, medical emergencies, or other unforeseen circumstances can disrupt your income. Having savings can provide a safety net during these challenging times, allowing you to continue making mortgage payments and covering essential expenses.
- Building a strong financial foundation: Saving after buying a house demonstrates responsible financial planning and helps you build a solid financial foundation for the future. This can open doors to other financial opportunities, such as investing in your retirement or saving for your children’s education.
Expert Recommendations for Savings After Buying a House
Financial experts generally recommend having a minimum of 6-9 months’ worth of living expenses saved after closing on your new home. This ensures you have enough funds to cover essential costs like mortgage payments, utilities, groceries, and transportation in case of unforeseen circumstances.
However, some experts suggest having up to 20% of the home’s value leftover in cash reserves. This approach provides a more substantial financial cushion for unexpected repairs, renovations, or other significant expenses.
Ultimately, the amount you need to save depends on your individual financial situation, risk tolerance, and comfort level. Consider your income, expenses, debt obligations, and overall financial goals when determining the appropriate savings target for your needs.
Strategies for Saving After Buying a House
Building a financial cushion after buying a house requires careful planning and disciplined saving habits. Here are some effective strategies to help you achieve your savings goals:
- Create a detailed budget: Track your income and expenses to identify areas where you can cut back and allocate more funds towards savings.
- Automate your savings: Set up automatic transfers from your checking account to your savings account on a regular basis. This ensures consistent saving and helps you reach your goals faster.
- Reduce unnecessary expenses: Analyze your spending habits and identify areas where you can cut back, such as dining out, entertainment, or subscriptions.
- Consider a side hustle: Explore opportunities to earn extra income through a side hustle or freelance work. This can significantly boost your savings and accelerate your progress towards your financial goals.
- Review your insurance coverage: Evaluate your insurance policies for homeowners, auto, and health to ensure you have adequate coverage without overpaying.
- Refinance your mortgage: If interest rates have dropped since you purchased your home, consider refinancing to a lower rate. This can save you money on your monthly mortgage payments, freeing up funds for savings.
Building a Strong Financial Foundation for Homeownership
Saving after buying a house is a crucial step in building a strong financial foundation for your homeownership journey. By following the expert recommendations, implementing effective saving strategies, and adopting responsible financial habits, you can ensure a secure and financially stable future in your new home.
Here are some additional tips for building a strong financial foundation as a homeowner:
- Pay down debt: Prioritize paying off high-interest debt, such as credit cards or personal loans, to reduce your financial obligations and free up more money for savings and investments.
- Invest in your retirement: Start saving for retirement early and consistently to ensure a comfortable and financially secure future.
- Build an emergency fund: Aim to build an emergency fund that can cover at least 3-6 months’ worth of living expenses to provide a safety net for unexpected events.
- Seek professional financial advice: Consult with a financial advisor to develop a personalized financial plan that aligns with your goals and risk tolerance.
Remember, homeownership is a long-term commitment, and financial planning is an ongoing process. By adopting responsible financial habits, saving consistently, and seeking professional guidance when needed, you can build a strong financial foundation for a successful and rewarding homeownership experience.
Revisit Your Budget
Agent Elizabeth H. It can be intimidating to consider creating a homeowner-oriented financial plan after going through the purchasing process, but it’s a necessary step you can’t afford to overlook, according to ONeill of Warburg Realty in New York City.
According to ONeill, “sitting down and working out a budget will pay dividends.” Your budget should fully account for all of the expenses associated with home ownership. This covers your mortgage payment as well as any additional costs for maintenance and repairs, homeowners association or condo dues, and increased utility bills. The latter two are important things to think about if you’ve recently decided to buy instead of rent. If you’ve never owned a home before, having to replace a broken window or fix a leaky toilet out of pocket can be a wake-up call, according to ONeill.
The percentage of the sale price that you can anticipate spending on upkeep and maintenance, including landscaping, housekeeping, and small repairs, could range from 1% to 4% overall. That sum, however, does not cover major costs that you might have as a homeowner, like replacing your roof or HVAC system, which can cost tens of thousands of dollars each.
The founder and president of Freedom Financial Group in Birmingham, Alabama, Tad Hill, advised first-time buyers to establish a separate savings account specifically designated for homeownership in order to cover more significant repairs. He advised “planning to keep at least $5,000 to $10,000 in cash, so you have it available when something breaks,” because the cost range for these services is not low.
Budget for Upgrades
If you want to renovate the bathrooms or kitchen, you’ll also need to allow money in your budget for upgrades. The most recent U.S. survey indicates that homeowners renovated their homes for a median total of $15,000. S. Houzz & Home Annual Renovation Trends survey. Approximately one third of the homeowners who responded to the survey said they would finance the projects with credit. It might be more prudent financially to pay cash (more than 80% of those surveyed did), but
Paying off your current debt should be your top priority in addition to avoiding taking on new debt. Reducing credit card debt, student loan payments, and auto loans can increase your available funds for your home savings account and give you more room in your budget.
If you’re a first-time buyer, you might find it useful to start a savings account and contribute to it on a regular basis to help cover any unforeseen repairs or renovations.
How Much Home You Can ACTUALLY Afford (By Salary)
FAQ
How much money should I have saved when buying a house?
How much cash should you keep when buying a house?
How much money should a homeowner have in savings?
How much should you pay when buying a home?
Expect to pay between 2% – 6% of the total purchase price of the home in closing costs. It’s also important to keep in mind that variable expenses like utilities, maintenance and repairs will also come out of your budget when you own your home.
How much debt do you need to buy a home?
For example, if you have a $250 monthly car payment and $50 minimum credit card payment, your monthly debt would be $300. The amount of money you spend upfront to purchase a home. Most home loans require a down payment of at least 3%.
How much down payment do you need to buy a home?
The amount of money you spend upfront to purchase a home. Most home loans require a down payment of at least 3%. A 20% down payment is ideal to lower your monthly payment, avoid private mortgage insurance and increase your affordability. For a $250,000 home, a down payment of 3% is $7,500 and a down payment of 20% is $50,000.
How much money should you spend on a house?
Input these numbers into our Home Affordability Calculator to get a clear idea of your homebuying budget. Most financial advisors agree that people should spend no more than 28 percent of their gross monthly income on housing expenses, and no more than 36 percent on total debt.