Everyone knows that it can be expensive to buy a home. However, not everyone is clear on the actual costs or how to budget correctly when preparing to buy a home. Here are some of the essential expenses that you need to consider when you are working out the actual cost of homeownership.
Down Payment
The down payment for your home is a one time but pretty significant cost. Most people will spend years saving for a down payment. The traditional amount of a down payment is 20% of the selling price of the property. This sounds intimidating, but here are government programs, military home-ownership options, and loans possible to alleviate the pressure of a full down payment.
When saving for your down payment, aim to have more than you need. Saving extra money on top of what you anticipate having to put down will help to cover expenses like removal costs, furniture, and other unforeseen costs.
Home Inspection
Your lender will typically want to see an appraisal of your home. However, a home inspection and an appraisal are different. A home inspection is for grading the home’s condition. They will check the structural aspects of the building, the floors, windows, doors, electrical system, plumbing, and more. This will happen after the seller has accepted the offer, but before you officially buy the house.
It is your responsibility to hire a home inspector; you should factor at least $500 into your budget to cover this cost. Keep in mind, though, that they can be more expensive.
Closing Costs
Closing costs are an often forgotten but hefty cost. The closing costs are the lender and third-party fees that happen at the end of the process to buy a home. The closing costs can vary greatly, so it is very important that you read your loan estimate. Your loan estimate will be an official piece of paperwork you get from the lenders to compare and decide which lender to use. This will detail the number of closing costs you will be required to pay.
Home Insurance
You should compare multiple companies for your home insurance quotes. You can also get your home insurance bundled into your mortgage offer. Each insurance provider will use different calculations to work out the monthly cost and coverage.
If you opt to have home insurance separate from your mortgage, then you will need to make sure it meets the requirements of your mortgage amount.
Property Management Services
If you intend to rent the home out, then you will likely pay for property management services. They will handle the day to day running of the property. This includes rental agreements, tenant screening, maintenance and repairs for the property, etc. The rate will vary depending on the property and how much the property management company is involved.
Property Taxes
If you’ve never owned a home, you might never have come across property taxes. This tax is not included in your mortgage payments. Instead, you will receive an annual bill to pay your property taxes. The amount you will pay for your property taxes will depend on where you live and the assessed value of your home. In order to budget for this, you should set aside some money each month. By saving up, you will be prepared to make a large lump sum payment when the time comes.
HOA Fees
You may or may not have HOA fees. Homeowners Associations exist in many neighborhoods, and you will be required to pay a monthly or yearly fee to help support yours. It is essential that you understand what is expected of you in your agreement. If you are found to be breaking your contractual obligations, you can be charged a fee for doing so. You can budget for this when you see the total amount you need to pay.
For a yearly payment, set aside some money each month to avoid paying a lump sum at the end of the year, similar to your property tax payment.
Mortgage Insurance
There are some instances where you will need to have mortgage insurance after you buy a home. If you make a down payment of less than 20%, you will have to pay mortgage insurance. This can be as much as 2% of the loan amount annually. The mortgage insurance is in place to protect the mortgage lender should you default on the loan.
You may have to pay an upfront amount and premiums each month. The monthly payments can be rolled into your loan payment. When the remaining principal balance of your mortgage falls below 80% of the value of the home, this will change.
Many mortgage lenders will automatically cancel the mortgage insurance when you only owe 78% or less of the principal. Until those changes happen, you should ensure you factor this into your monthly budget.
For help with your property management of real estate needs, contact Amanica today.
