The Costs Of Buying A Home
In the following article we’ll discuss an important topic that’s “The costs of buying a home” let’s discuss in details:
From the down payment to closing costs to property maintenance, we’ve rounded up all the costs involved with buying a home within the article below-
“Can I afford a home?” may seem like an overwhelming question, but really, there are just two major types of expenses you have to consider: upfront and ongoing costs. Here’s a breakdown of each, so you can figure out how much you’ll need — and if you’re ready to get going.
What to actually consider when asking, “Can I afford a home?”
Upfront Costs
Down payment
Your down payment helps prove to your lender that you can afford a home. In the past, most advisors have recommended that you simply put down 20 percent to get the best loan terms. But these days, most first-time buyers put down less than 10 percent. And with mortgages like FHA, USDA, or VA, you can actually put down as little as 3.5 or even 0 percent. That information alone can make “Can I afford a home,” so much more easier to answer. If you actually put down less than 20 percent, your lender will often require private mortgage insurance (PMI). It can cost from 0.2 percent to 1.5 percent of your loan. However, it actually disappears after you’ve paid off 22% of your home. You can pay it all along with your home closing costs, or roll it into your mortgage payment.
Inspections and appraisals
A home appraisal estimates the true value of the home so your lender knows they’re not financing it for more than it’s worth. A home inspection helps you make an informed purchase: Any issues (and most homes have some) will appear on your inspection report, so you’ll know what to expect. After your offer is accepted, and before you actually close, you’ll have an inspection and appraisal on the house. A basic home inspection costs around $300 to $500, and you can actually expect to pay $300-$400 for an appraisal.
Closing costs
Closing costs range from 2 to five percent of the entire cost of the home, and they’re due when you close on your mortgage. You might be wondering what these costs entail. Closing costs actually vary by loan, but they generally include:
- Title Insurance: Insurance that protects the house buyer just in case the seller doesn’t have full rights or access to the title of the property
- Origination Fee: A loan processing fee charged by the lender
- Underwriting Fee: Covers the cost of evaluating and verifying your loan application
- Document Preparation Fee: Pays for your loan file to be prepped
- Credit Report Costs: The fee to pull your credit score and report.
- Property Taxes: Prorated property taxes from your closing date through the end of the tax year.
- Homeowners Insurance: Typically, your first yearly premium.
- Prepaid Loan Interest: the cost of interest you’ll owe up until the 1st payment is due on the home loan.
Ongoing costs
Principal and interest
Your principal is actually the amount of your home you’re paying off every month, and your interest is added to that in your mortgage payment. Exactly how depends on your mortgage type. With a fixed-rate mortgage, this amount will actually stay the same for the life of the loan, however the amount of principal versus interest will change as time passes.
Insurance
Homeowner’s insurance protects your property in case of loss or damage. Rates vary widely by where you actually live (state averages for annual premiums range from $500 to $2,000) and by coverage, so you’ll want to shop around to actually find the best deal.
Property taxes
States and cities have their own property tax laws and rates, so check with the local govt. or authorities in order to find out the rate on a potential home. Multiply the assessed value of your home by the tax rate to actually get an estimate on your future payment.
Private Mortgage Insurance
As noted above, if you put less than 20 percent down, you’ll likely need to pay 0.2 percent to 1.5 percent of your loan in PMI as a part of your monthly mortgage payment — at least until you have enough equity in your home, or until you refinance.
Homeowners Association Fees
Depending on where you live, you’ll have to pay HOA fees every month. These are actually neighborhood organizations, and your fee covers anything from community pool maintenance to even snow shoveling or mailbox painting. They vary quite a bit by location, but the average or common HOA fee is around $200-$300 per month.
Home Maintenance Costs
A new, move-in-ready, built-to-order house is actually going to cost a lot less to keep up than a century-old foreclosure, but still, all homes require maintenance. On average, expect to spend around 1% of the cost of your home in maintenance each year — and more if it’s a fixer-upper.
Property Maintenance
This’ll vary, too. If you actually have a green thumb, a ladder, and spare time, you might only need to budget for materials. Or you may want to leave it all to the pros. For each home you consider, you’ll want to eyeball the property and obtain an estimate for maintenance services or for the tools you’d need for a DIY home project.
If you’ve calculated the above and feel you’re actually ready to buy a home, now see how much home you can actually afford.
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