WHAT ARE THE COMMON EXPENSES WHEN BUYING A HOME
Are you thinking about homeownership for the first time? Becoming a homeowner is a critical decision for most of the people. Not only does owning a home have several advantages over renting, but it also can be an excellent way to building wealth over time.
In many housing markets, real estate agents tell prospective buyers that owning a house is cheaper than renting a comparable property. In addition, that is often true, in terms of your mortgage payment versus the quantity you would pay for rent. However, the mortgage payment is simply one of the expenses that you need to know, and there are often other hidden costs. Here are 10 potential one-time and ongoing expenses of owning a home that you need to be prepared for before you begin shopping.
YOUR MORTGAGE PAYMENT
We will start with the most obvious expense. When you buy your first house, you will probably have to get a loan from a mortgage lender to make the purchase. Therefore, unless you purchase your house in cash, you’ll need to make a mortgage payment monthly. A part of that payment will go toward your principal balance and part are going to pay insurance to your lender.
HOW MUCH MORTGAGE AM I ABLE TO AFFORD?
Calculate your monthly costs of owning a home including insurance, property taxes, and HOA fees using our mortgage calculator.
Each year, you will have to pay property taxes on your house. Property taxes can vary widely counting on where your house is located. If you have a mortgage, your property taxes are mostly paid in monthly installments to your lender. The lender will put the funds in escrow and pay your entire real estate tax bill on your behalf before it’s due.
If you have a mortgage on your home, you will probably be required to take care of a homeowner’s insurance policy. It is a sensible idea to take care of insurance, albeit you purchase your home outright. Homeowners insurance can cover you in the event of catastrophic events like fires. This expense is additionally paid monthly. The often-required combination of principal, interest, taxes, and insurance is usually mentioned as PITI.
If you put less than 20% down when you obtain a mortgage, your lender will presumably require you to get private mortgage insurance, which can even be added to your monthly mortgage payment. FHA loans have their type of mortgage insurance, while conventional and other types of mortgage borrowers can obtain private mortgage insurance or PMI. This expense can vary considerably depending on the kind of mortgage and the very much money you are putting down.
We already mentioned that property taxes, homeowner’s insurance, and mortgage insurance are generally added to your mortgage payment and deposited into an escrow account. Well, your escrow account doesn’t just start from zero, you’ll be required to make an initial deposit at closing. This may give your account some reserves, just in case your property taxes or insurance bills end up being above the lender’s initial estimate.
Mortgage points are an optional expense you could choose to pay when you get your mortgage. You can pay “points” on your mortgage, which is an up-front expense, in exchange for a lower rate of interest over the term of the loan. One point is equal to 1% of your loan’s initial principal balance, and this expense is often worth paying in many cases particularly if you propose to be in the home for several years and therefore the long-term interest savings outweigh the cost of paying points.
Closing costs are another expense that can vary extremely based on your home, location, and several other variables. Generally, closing costs run from 1% to 3% of the home’s price but can be significantly higher, especially when it involves low-priced homes.
In addition to a number of the opposite expenses mentioned (points, prepaid), common closing costs include your lender’s fees for origination, processing, and underwriting the loan, appraisal costs, title insurance, document prep fees, deed recording fees, and credit report fees, just to name a few.
Most people who have an apartment paying monthly rent are used to paying certain utilities, cable, particularly electricity, and internet. When you buy a home, however, you have a monthly cost for a few utilities that you simply aren’t want to pay. Water is usually included with rental properties, as are sewer and garbage pickup expenses. Make sure to make a budget for these when you’re buying a home.
If your new house is in a neighborhood, there’s an honest chance that you’ll have to pay some kind of homeowner’s association (or HOA) fee. These can vary dramatically based on your location and therefore the services the HOA dues cover.
Here’s the most important wild card expense you need to organize. Your house will need maintenance over time, and if you’ve been a renter, maintenance has probably been your landowner’s responsibility. Home maintenance expenses can range from slight costs like replacing your air filters to major costs like replacing your roof.
Set a sensible budget with these costs in mind. Here is the reason. When first-time buyers are buying a home, they often have unrealistically high expectations of what proportion they will afford to spend. One big reason for this is that they are not conscious of all of these expenses.
The bottom line is that by having a sensible idea of what proportion you have to pay for your home and its associated expenses, you can avoid getting over your head with housing expenses that are too high before it is too late. If you want to uncover more about the simplest mortgage lenders for low rates and costs, Izabella Lipetski top real estate agent in East Bay California created a shortlist of the highest mortgage companies. Izabella Lipetski has even used these lenders themselves to chop their costs.