Buying a home is probably one, if not the largest, financial transactions you will make in your life that’s why it’s best to learn about the process of home buying and the responsibilities that comes along with it before making that big decision.
When you buy a home, there will be a number of costs that you’ll need to take into account beyond mortgage fees. Prospective buyers who are unprepared for the true cost of owning a home may be in for an unlikable surprise when homeownership will draw more money out of their pockets in addition to their mortgage payments. It is never too early to review and check if you can handle all these expenses and include them when working out your overall budget.
Upfront Costs of Buying a Home
Earnest Money – On average, expect a 1-2% of the total purchase price as earnest money. This will be applied to your down payment once the transaction is finalized.
Down Payment – This is the amount you put towards the cost of the property when you buy a home. This can range from 0% to 20% of the total purchase price.
Closing Costs – This typically makes up 2-5% of the purchase price of the house. The closing costs are fees charged by lenders and other parties associated to the purchase of the home. These include home inspection (unless a different arrangement has been made between parties), title services, home owner’s insurance, government recording fees and taxes, buyer’s attorney, appraisal fee, survey fee).
Allot a budget for moving especially if you are moving across the country. Moving into a home can involve a lot of expenses: packing, storing your belongings, and hiring a moving company.
Mortgage and Insurance Costs
Mortgage – There are many financing options that are available and mortgage types. Best to look and shop for the best rate and also take into account the fees and charges when choosing a mortgage.
Homeowner’s Insurance – Go for the more comprehensive option that can cover 100 percent of the cost to rebuild your home. Make sure that your homeowners policy has enough coverage for all of your financial assets like your home and personal property.
Private Mortgage Insurance – If your down payment is less than 20% of the purchase price, you’ll have to pay for PMI. This insurance protects the lender in case you default. It can cost an extra $50 to $100 per month of your mortgage.
Property Taxes – Property taxes are typically based on the value of your home. So the more expensive your home is, the more you’ll have to pay in taxes. The property tax amount you owed is the product of the value assessment of your home and the local tax rate. Most mortgages already include taxes with your monthly payments to them.
Utilities – Setting up gas, electricity, water, landline, TV packages and broadband and paying for these every month once you moved in. If you are moving to a larger home, they could cost you more than what you were paying for now.
New Things – No matter what the size of your new home is, you will certainly buy something new for your new home – new curtains, a new bed, tables? It is nice to fill up new things in your new home but it would definitely hurt your wallet if you do not allot a budget for these.
Maintenance – Budget at least 1% or 2% of your home’s purchase price each year for home maintenance costs. Keeping up with regular home maintenance will save you from future headaches and wasted money. While some of the home maintenance can be done on your own, you may still need to hire a contractor to keep your heating and air conditioning system in top shape.
Repairs and Renovations – Home renovation is a thrilling experience, but it could also cost a lot of money especially if it’s a big home project like replacing your roof, changing your floors or updating your kitchen.
HOA Fee – When you buy a home in a subdivision or any community that has Home Owner’s Association, you are obligated to join that HOA and pay monthly or annual HOA fees for the upkeep of the common areas and amenities.
This brief overview should give you an idea of the true cost of homeownership other than the property costs. Understanding the financial commitments involved in owning a home is the first step. As long as you buy what you can afford, budget for expected and unexpected expenses then everything should be fine.