Buying a home is a major personal and financial milestone. Considering it’s one of the largest purchases you’ll make in your lifetime, it’s important to plan ahead and put a strategy in place to set yourself up for success.

This doesn’t only mean planning your timeline, choosing a location, or even deciding on the number of bedrooms you’ll need. The most crucial aspect of preparing to buy a home involves setting your budget. Start by familiarizing yourself with various homebuying costs you’ll need to save for, and how much you should realistically put away.

Get Serious About Saving

You might be accustomed to regularly putting money away in a retirement account, rainy-day fund, or to save up for another big purchase. However, buying a home often requires longer term and more strategic planning due to the various costs involved.

You’ll need a significant amount already saved before you begin house hunting, which means starting to save as soon as possible. With any financial goal, you’ll reach your target sooner the more aggressively you approach your savings efforts.

If you’re already at least somewhat familiar with both your time frame and the costs required, divide the money you think you’ll need by your rough timeline to determine how much to set aside from each paycheck.

Understand Your Homebuying Expenses

How much money you’ll need depends on a wide range of factors, including location, home size and type, and other features of the home. However, these are the primary expenses you should consider as you begin to save:

• Down Payment

The down payment is the first payment made on a mortgage, which is usually a percentage of the loan value. This is an initial payment made toward the total cost of a home. It’s usually a percentage of the total purchase price with the remaining balance financed.¹ A common misconception is that a sizable down payment is required to buy a home, but this isn’t always true.

• Earnest Money

Earnest money is funds given to show seriousness about a home purchase. The money goes into an escrow account until financing is arranged, at which point it gets credited to the purchase price. If a purchase fails to close, the seller might keep or return earnest money depending on the reason for the failure to close.

• Home Inspections

Buyers are typically responsible for the cost of a home’s required inspections. These can sometimes be paid at closing but are often required upfront by the inspector. Depending on your local market and the home’s size, inspections can equate to hundreds—sometimes even thousands—of dollars.

• Closing Costs and Insurance

When you finalize a home purchase at closing, you’ll be expected to pay for a number of related expenses called closing costs. These cover things like title searches, attorney fees, homeowners insurance, and appraisals, all of which often amount to roughly 2–5% of the home’s cost.²

• Expected Maintenance

Becoming a homeowner means being responsible for home repairs and maintenance. Before buying, you should make sure you’ve budgeted enough to cover future maintenance expenses, as they often occur unexpectedly. Plan to spend about 1–4% of your home’s value each year for both regular upkeep and unexpected repairs.³

Decide What You Can Afford

Even after a home is yours, there are additional expenses beyond the monthly mortgage payments to consider, including property taxes, utility bills, and Homeowners Association (HOA) fees (if applicable). All these factors are why it’s so important to have a price range in mind that you’re confident you can afford as early in the process as possible.

Whether you feel like you’re ready to begin the process or still need some guidance on how to approach buying a home, contact a Wintrust Mortgage loan expert to put yourself in the best homebuying position.