Think you’re ready to buy a house after you’ve saved up enough money for a down payment? Reconsider your position. The money you bring to the closing table represents a significant portion of the total cost of purchasing a home—but it is by no means the only one. Based on the six main expenses that most first-time homebuyers neglect and what they typically cost on average, you should set aside as much as an additional $15,000 in your savings account.
Aside from the purchase price of your house, closing expenses may vary significantly depending on the location of your home and a variety of other factors. Closing expenses typically range from 1 percent to 3 percent of the home’s purchase price, but they may be considerably more in some instances, particularly when it comes to low-priced properties. Other typical closing charges include your lender’s fees for loan origination, processing, and underwriting, as well as title insurance, deed registration fees, document preparation fees, and credit report fees, to name a few.
Taxes and Insurance
As a homeowner, you are responsible for paying your property’s yearly tax. Property taxes vary from one country to another and range from about 0.55 percent to almost 2.4 percent. Some towns impose extra property taxes. Visit the Tax Foundation to obtain an estimate of your state property taxes. The amount you pay for house insurance is dependent on where you intend to live, but the average country size is around $95.51 per square foot, according to homeinsurance.com.
Use a calculator for insurance at home to obtain an estimate of what you will have to spend. In most instances, your home insurance and property taxes may be divided into 12 monthly installments and added to your mortgage payment, which is kept in custody** and paid by your mortgage company when due to it.
Home Association and Utilities
If you have a Home Owners Association (HOA) or a Condo Association, this organization will have to pay monthly or yearly charges to maintain the communal spaces. These rates vary greatly depending on region (from $100 to $700 each year) but, according to various sources, averaged about $200 to $300 in 2020. You may be used to pay an electricity bill for a rental, but homeowners have to produce electricity, water, and sewage, which may add up to another heavy monthly charge. Ask the vendors to disclose their utility bills for the last 12 months before buying a house and get an idea of how much you spend.
When you own a house, you are responsible for its upkeep, which may be costly depending on whether you need to repair an appliance or replace gutters. To prepare for possible house repairs and maintenance, new homeowners should put aside $4,000 to $5,000, according to Wes Woodruff, a certified mortgage adviser with Angel Oak Home Loans in Atlanta.
Mortgage and Private Mortgage Insurance
A mortgage lender will most likely be required to provide you with a loan to purchase your first house. You will be required to make a monthly mortgage payment unless you are buying your home outright. Approximately one-third of the payment will be applied to your principal amount, and the remaining third will be utilized to reimburse your lender for insurance premiums.
However, it must be noted that your mortgage lender may need PMI if your down payment is less than 20%. It is usually around 5-10% of the yearly cost of the loan. Investopedia points out that the typical house cost in the USA ($261,500 according to Zillow data from 2018) may be an additional $218 a month. This fee is frequently included in your monthly mortgage payment by mortgage firms, and the concept is that it protects the lender if you fail on your loan.
Once 20 percent of the home has been paid, the PMI payment should go away. So it’s an important task to consider a look into trustworthy companies and get help with a first-time home buyer mortgage loan.
Purchasing a home is a significant financial investment. Before you start looking at houses or comparing financing alternatives, you should determine whether or not you are prepared to become a homeowner. Here’s the crux of the matter: when first-time homebuyers go house hunting, they often have unreasonably high expectations about how much money they would be able to spend on the purchase. One major cause for this is that they aren’t aware of all of the costs that they are incurring.
The bottom line is that by having a realistic understanding of how much you will have to pay for your house and its related expenditures, you may prevent falling into financial trouble with high housing costs before it is too late.