Buying a home is a huge step financially, and there’s much to consider to get a clear picture of just how much you’ll be spending both during your actual purchase, and what follows as you settle into your new living space.
Creating a budget is a helpful tool that goes a long way. To start, utilize a house payment calculator that takes into consideration things like income and debt, and build off that to see what’s affordable.
Then, work on the following costs as part of your budget.
Mortgage Payments
The biggest cost to consider is your mortgage payments, or what you’ll be paying monthly on the home. If you choose finance to buy your home, the amount of your payment will depend on how much you borrow, the interest rate on your home loan, and the amount of time you have to pay off the loan.
There are several types of loans to consider: fixed-rate mortgage, adjustable-rate mortgage, and some federally backed loans, which can all be paid over varying periods of time.
Down Payment
This will be your biggest closing cost when buying a home. Although some loans (USDA and VA loans, for example), require no money down, the majority of homebuyers will need a down payment of at least 3% or 3.5%
Private Mortgage Insurance
If your down payment is less than 20% of the cost of the home, your lender will usually require you to take out private mortgage insurance so the lender is protected in the event you default on the loan.
The closer your down payment is to 20 percent, the lower your monthly cost for PMI.
Appraisal
A lender will require an appraisal done by a professional on your prospective property before your loan is approved.
Depending on the size and complexity of the property, appraisals can run anywhere from $300 to $700.
Inspection
Though these are not required, inspections are a smart step to take in the home buying process.
This is to ensure the home is in good working order and no major repairs will be needed once the property is officially yours. If something does turn up, you can utilize any repair costs in your negotiations with the seller, potentially asking them to take responsibility for the costs or lowering their asking price.
Property Taxes
These vary by location, so be sure to research what the state and local government charge to pay for public expenses like schools, sidewalks, and parks.
Utilities
Ask the seller for a record of the utility expenses over the course of the previous year. This will give you a good idea of what to budget for going forward.
Title Fees
You will pay for several fees related to the title of your home, such as charges for a title search, title settlement, title insurance binder, and title insurance.
Escrow Fees
During the closing process, an escrow account will usually hold the money while the sale is finalized. You may have a portion of your monthly mortgage payment go into escrow to pay for property taxes and insurance.