Buying your first home is one of the best moments you can have in life. But if you’re like many others, the road to get there is not always easy. There’s plenty of planning and budgeting to do to make sure your dream house doesn’t turn into a financial nightmare.
If you have set your sights on buying a house in Las Vegas, consider these tips on how to budget for it.
1. Find out how much home you can realistically afford
The rule of thumb is to spend no more than 25% to 28% of your monthly income for mortgage. This will help ensure you’ll still have enough funds for emergencies and other expenses while you and your family continue to enjoy a good quality of life.
A great way to determine how much to budget for your new home is to get mortgage pre-approval. It will allow lenders to review your finances and tell you how much mortgage you will likely get approved for. You can then use this amount in setting a budget for your new home.
2. Calculate the down payment
Now that you know the price points to target, it’s time to determine how much upfront costs to save for, including the down payment and closing costs.
The down payment is typically the most substantial amount you have to prepare for. Regardless of the purchase price, it’s generally advisable to make a down payment of 20%. This assures you of outright equity, which you can cash in when you sell the property. It will also give lenders the confidence to grant you more favorable loan terms, including a lower interest rate.
In addition, if you pay less than a 20% down payment, you may need to pay private mortgage insurance or PMI until your mortgage payments reach 20% of the total loan amount
However, if you’re financing the home through a VA loan, you can enjoy certain benefits, including:
- No down payment
- Better terms and interest rates compared to what you can expect from a typical mortgage
- Loan limits equivalent to the Frannie Mac and Fannie Mae conforming limits, or even more in some high-cost areas
- No PMI or mortgage insurance premiums (MIP), which is required in an FHA loan
- Exemption from certain closing costs
While military home buying may give you the advantage of not having to make a down payment, you might still want to consider the benefits of one, including faster equity building and lower monthly mortgage payments.
Furthermore, a down payment can make you more competitive on the market as many home sellers prefer buyers who are willing to make an upfront payment, especially if part of it is paid as earnest money.
There might also be circumstances when you have to pay a down even with a VA loan, such as when the home you want to buy is appraised for a lower value than what you agreed with the seller.
3. Calculate closing costs
Closings costs are the payments you make as part of the buying process. These include:
- Escrow fees
- Inspection fees
- Lender’s fees
- Property taxes
- Mortgage insurance (if any is required)
- Homeowners Insurance
- Any HOA or condo fees
According to this report, the average closing cost in Nevada is between $4,160 and $7,395 for an average home price of between $300,000 and $400,000, or around 1.39% to 1.85% of the home price.
4. Add your savings for the down payment and closing costs to your monthly budget
Knowing how much down payment and closing costs you may have to pay, you can calculate how much of your monthly income you should set aside to save for these costs.
Have a monthly saving goal based on your current income and expenses. Using this, you can calculate how long it will take before you’re ready to buy a home.
5. Set aside a separate account for your down payment savings
There will likely come a time when you’ll want to dip into your home buying funds to spend on a trip, a new car or furniture, or some other tempting purchase. To keep you from doing that, consider putting the funds into a separate account, preferably one that yields a higher interest, such as an online savings account or a money market account.
You can also automate monthly transfers to the fund to make sure you don’t deviate from your goal.
If you want to speed up the timeline, look into how you can save on non-necessities. Perhaps you can do away with that expensive gym membership for now or avoid having too many expensive dinners out. You might also want to find a way to increase your income through a side hustle, or by accepting more responsibilities at work.
Get expert guidance for all your real estate needs in Las Vegas
For your next home purchase in Las Vegas, work with us at Loralee Wood, LLC. We are the number one military specialist in the area and a 5-star Preferred Zillow agent. With over twenty years of experience, we know what it takes to help you successfully navigate the process of buying a home in this dynamic market.