Buying a home can be a fun and stressful time. If you’re a first time home buyer, there are some costs (these tend to get overlooked) you should know about before entering into homeownership. Before buying a home, be prepared for these 8 costs:
- Mortgage payments. Your mortgage is a long-term loan which is borrowed in order to purchase a home. In addition to repaying the principal amount borrowed, you’ll be required to pay interest to the lender. To help give you an idea of what your monthly payments will be, check out this mortgage calculator.
- Inspection fees. Because a home is most likely to be your biggest financial investment, you should have the home inspected before making an offer. This is when you know any repairs the home might need and can use this information as leverage while negotiating the price of the home. A home inspection can run up to a several hundred of dollars so you’ll want to be prepared for this upfront.
- Appraisal fees. Before you buy a home, you’ll be obligated (by your lender) to have the property valued by a professional real estate appraiser. In the past this fee was included in the closing costs, but is no longer that way as the appraiser needs to be paid regardless if the deal goes through.
- Private mortgage insurance. If you put a down payment that is less than 20% of the home’s price, you’ll be required (in most cases) to take out a private mortgage insurance policy. According to Mortgage Insurance Companies of America, a home costing around $200,000 can expect a monthly premium between $50-$100 per month. Ideally, the closer to the 20% down payment, the better your monthly payments will be.
- Closing costs. As you prepare to sign the closing documents on your home, be prepared to pay closing costs and any other assorted fee. The closing costs usually include processing fees, underwriting fees, recording fees, survey fees, and title insurance fees; these can run up to thousands (2-3% of the mortgage loan amount) of dollars. When applying for a loan, be sure to speak with your lender and make sure these fees are included in the loan.
- Homeowners insurance. This is critical to have to protect yourself against rebuilding, repair, or replacement costs in the event of a major disaster or theft. If you borrow money from a lender, you’ll be required to purchase homeowners insurance. Before buying a home, talk to your insurance agent and ask for a quote to get a sense of how much it will cost so you can budget accordingly.
- Property taxes. These taxes are charged by the local government for public expenses, such as schools, parks, and sidewalks. The seller or seller’s real estate agent can provide you with the current annual tax on the property is. Also, be sure to find out when the next tax assessment is scheduled and if it will be increased by the sale of the home.
- Utilities. Once you find your dream home, ask the seller to provide you with a record of a year’s worth of utility bills to get a sense of how much you need to budget for utilities (heating, cooling, electricity, gas, and water). Also, take into account the differences in family size.
As you move forward in the process of buying a home, your real estate agent can answer any of your questions. Ready to buy? Give us a call today and let us help you make your homeownership dream come true.