SPRINGFIELD, Mo. – With increasing interest rates and higher costs of living, home ownership can feel like a pipe dream for many Americans. Plus, the cost of maintaining a home can catch many people off guard.

Local financial professional J. Barry Watts from WealthCare Corporation provides tips to help you afford your dream home.

Q: IF SOMEONE HOPES TO BUY A HOUSE IN MISSOURI, WHAT SHOULD THEY KEEP IN MIND? 

  • Buying a home is one of the biggest financial decisions most people will make in their lifetime. It’s important to make sure you can afford it! 
  • A recent study found that people living in Missouri need to make about $69,920 annually to afford an average monthly mortgage payment.
  • Typically, your monthly payments should be no more than 30% of your monthly income, so make sure your budget can afford the estimated monthly payments before signing on the dotted line.
  • Rising interest rates have made it difficult for many people to afford a home. The average 30-year-fixed-rate mortgage is nearly 7%.
  • You’ll also need enough money for the down payment, which is typically 5% to 20% of the purchase price, depending on the type of loan used.

Q: WHAT OTHER KINDS OF HIDDEN COSTS SHOULD BUYERS BE AWARE OF? 

  • In addition to the down payment, buyers often have to pay the closing costs. The exact amount varies depending on local regulations and taxes, but it can be up to 5% of the purchase price.
  • Moving can be an expensive process, especially if you have to hire someone to pack or transport your belongings. 
  • Your monthly housing costs will likely go up when you own a home because you’re responsible for insurance premiums, property taxes, utilities and any HOA fees. Property taxes alone can cost up to $1,000 a month!
  • Flood insurance is important in our area and can cost an average of about $700 annually.
  • Many homeowners forget to budget maintenance costs for everything from yard care to a new roof.
  • It’s important to consider the full cost of major purchases like a home, to avoid committing to something you can’t afford. 

Q: WHAT SHOULD HOMEOWNERS DO TO MAKE SURE THEY ARE FINANCIALLY PREPARED TO OWN A HOME? 

Save Consistently 

  • Saving up for a down payment and closing costs can feel overwhelming, but saving as much as possible consistently can bring you closer to your goal of owning a home. 
  • Watts recommends using a separate savings account to avoid the temptation to spend what you save. Using a CD or high-yield savings account can help your savings grow even faster. 
  • You can also set up automatic withdrawals from your paycheck deposits to avoid the temptation to spend rather than save.
  • When working towards a large financial goal, it helps to have a strategy written down to keep you accountable. You can download a savings goal worksheet on wealthcarecorp.com to help you get started.

Adjust Your Budget  

  • Your budget will likely need an overhaul when you own a home. Adjust your plan to allow for new expenses and priorities.  
  • If you don’t have a budget yet, create one! It helps track your spending, encourages good saving habits and helps you plan ahead for home ownership costs. 
  • Create a budget line for home maintenance. It’s typical to spend about $1 per square foot of your home every year on maintenance.

Start An Emergency Savings Fund 

  • Homes are bound to have unexpected emergencies like broken plumbing, mold problems or storm damage.
  • Watts recommends setting aside 3–6 months’ worth of living expenses so you won’t need to take on debt to make ends meet when major unexpected costs come up. 
  • This money is set aside for emergencies like home fixes, medical expenses or temporary layoffs. To avoid spending the money, keep it in a separate account from your daily checking account. 

Q: SHOULD PEOPLE PUT OFF SAVING FOR RETIREMENT TO BUY A HOME?  

  • It can be tempting to put off saving for retirement in order to save more for a home, but it doesn’t pay off in the long run. 
  • Saving at an early age by contributing consistently towards a 401(k) or other retirement account can help you reap the benefits of compound interest.
  • Even if you want to buy a home as soon as possible, avoid withdrawing money from your retirement accounts because you’ll owe taxes and pay penalties on those funds.
  • Saving money for your future may not offer as much instant gratification, but setting yourself up for a secure retirement can bring immense peace of mind down the road.