Homebuying Budgeting for Singles
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Buying a home is one of the biggest purchases you'll ever make -- and one of the biggest responsibilities you'll ever take on. If you want to take this on while you're still single, you need to be especially prepared for the financial implications, because you're going it alone. But, if you budget well and plan ahead, it's a challenge you can overcome.
Plan for a Big Down Payment
Buying a home isn't cheap, so you need to budget for your savings. "At a minimum when purchasing a home you should have 20 percent saved," says Michael Solari, a certified financial adviser practicing in Bedford, New Hampshire. "First, you'll avoid private mortgage insurance. Second, it means that you're serious about a home purchase." For example, if you're planning for buy a $150,000 home, that means you should have at least $30,000 for the down payment. You also need to account for closing costs. Though it's sometimes possible to roll these into your mortgage, doing so can increase the interest you pay over the life of the loan.
Build Your Emergency Fund
Don't spend every last penny on the down payment. "If you're single, then I would having some additional savings in case you lost your job," notes Solari. "This is where I would recommend a six-month rainy day fund." For example, if you only have one month of expenses saved after you pay for the down payment and closing costs and you get sick, lose your job or even just have your hours cut, you can lose your home if you can't come up with the extra money to pay your mortgage.
Hurdles From Being Single
The extra financial stability of two incomes makes it easier to buy a home after you're married. "The biggest concern is that you're on the hook for everything," says Solari, "whereas if you are married, you might have two sources of income to weather any storms. Banks may also view married couples with two incomes more favorably when lending money." When you're looking for finances, put in the legwork to get quotes from several lenders so you can get the best deal. Though fractions of a percent on the interest rate might not sound like much, that small difference can save you thousands over the life of the loan.
Limited Investment Value
When you're buying a home, don't look at it as an investment or a way to "just stop throwing rent money away." The extra costs of buying versus renting usually eat up any equity built up in the home, especially during the first several years when your mortgage payments are almost entirely interest. "I don't view your primary residence as an investment," says Solari. "There are lot of costs associated with purchasing your home, not to mention that your initial mortgage payments go mostly to interest." However, though it won't make you rich, Bankrate.com suggests that if you are really in the home for the long term and pay off your mortgage, you'll have an inexpensive place to live in retirement. "Some of my older clients have sold their homes and downsized, which has worked out great for their retirement," recalls Solari. "So it definitely can help out, but I wouldn't bank on it."