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47% of millennials call this their No. 1 homebuying fear

Take a comprehensive approach to saving money.

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It's scary enough trying to save up enough money to buy a home during Covid. The median home price in the United States is almost $270,000, and a 20% down payment would be about $54,000. That price tag itself can be a daunting goal to reach, but millennials say their biggest fear about closing a deal is different.

The most frightening part: dealing with unexpected costs. Nearly half, 47%, of the respondents said hidden fees were the aspect they fear most. About 44% said their top concern was a lack of affordable homes, and another 38% were apprehensive about the prospect of major repairs.

That's according to real estate website Clever, which polled 1,000 prospective homebuyers in January to find out their top anxieties when it comes to the purchasing process.

"Beyond the down payment and mortgage, upkeep — and making it feel less like a house and more like a home — often costs far more than you think," says Sean M. Pearson, a CFP and an associate vice president at Ameriprise Financial. "And if you are not ready to plant roots and stay in one place for a while, you might never see the financial benefits of home equity."

Closing costs and other daunting expenses beyond the down payment

While focusing on the down payment is key, it's important to know there are other significant costs involved in buying a home. Additional fees, typically wrapped up into what are called closing costs, can include a bank appraisal of the home's value, escrow fee, homeowners insurance, title insurance, and more.

If you put less than 20% down upfront, you may also need to pay for private mortgage insurance. Then there's maintenance, upkeep, and move-in costs.

"People think the down payment is going to be X amount, when really they need to think about how much the whole process is going to cost," Alicia R. Hudnett Reiss, CFP, told CNBC Select.

Closing costs generally add up to between 2% and 5% of the home price and are due when you close. Those fees will vary depending on where you are, but last year averaged around $6,087 for a single-family home, according to ClosingCorp. That's up 6% from 2019 and more than twice what the typical American age 34 and younger had in savings.

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'The best way to save' to buy a home

Stash away extra cash for the less well-known costs of homeownership, so you won't be surprised by the bill or need to take money from another source you hadn't earmarked, experts suggest. Try using a mortgage and housing cost calculator to factor in all the expenses you may face.

"The best way to save is to consistently put aside money with every paycheck," says David J. Haas, CFP, the owner of Cereus Financial Advisors. "You have to be disciplined with your financial approach. That means living within your means, not carrying credit card balances, and still putting aside money every month for the down payment," as well as for other costs.

"A house can be a great investment and savings vehicle," he says, "but it's also a responsibility. The land holds value, but the physical house or apartment deteriorates and needs constant maintenance and occasional upgrading. You need to keep the maintenance in your budget."

Beyond the down payment and mortgage, upkeep — and making it feel less like a house and more like a home — often costs far more than you think.
Sean M. Pearson
Ameriprise Financial

Don't just save for the down payment and closing costs — create another emergency account or pad the one you already have, Haas recommends, so you can be ready to handle whatever homeownership crises may arise.

"You can't use every last dollar for the down payment plus moving expenses. Leave yourself an emergency fund," he says. When he and his wife moved into their first home, the sewer clogged and they needed an emergency drain service. "We also found out that our electric service in the old house we bought was inadequate and we needed an expensive electric service upgrade. We owned the house and it had passed inspection, so this was now all our responsibility."

Take a comprehensive approach to saving money

Although mortgage rates have dipped to pandemic lows (the average contract interest rate on 30-year fixed-rate mortgages was 2.96% in February), home values are rising. They went up 9% in the past year and will likely increase another 10% in the next year, according to Zillow.

Still, buying a home isn't impossible, especially if you have a comprehensive approach to saving. Almost 9 million Americans have relocated since the start of the pandemic, per the National Association of Realtors, and many more are planning to.

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Stash away a bit of money at a time until you reach the amount you need. Consistent saving can help you make the down payment. Careful planning and budgeting can help you determine how much more you may need.

"Since we can't predict the future," says Haas, "having some financial flexibility to maintain your home is also an important consideration."

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