Expenses to Expect When Buying a Home
Many first time homebuyers are unsure of how to begin the process of purchasing a home. You may have saved a lot of money in anticipation of buying a home, but aren’t really sure what to anticipate in costs. Budgeting for a home purchase can be overwhelming for first time homebuyers. Here’s a list of expenses to expect when buying a home.
House Buying Expenses:
Earnest Money Deposit
An earnest money deposit is a deposit made on a real estate sales contract that shows the buyer’s intentions of purchasing the property. It is intended to protect the sellers in the event that the sales contract falls through. At closing the earnest money deposit is applied toward the downpayment or closing costs at settlement. If the contract falls through the buyers may not be able to reclaim the earnest money deposit.
Most first time home buyers are aware that a down payment is needed for buying a house. The amount of downpayment you need will depend on the type of loan you are applying for and the sales price of the home. Check out this article to find out unique ways to save for your down payment.
Closing costs are fees paid at the settlement of a real estate transaction. Closing costs include appraisal fees, title insurance, discount points, pre-paid interest and origination fees. Closing costs can vary by lender or region you live in, but typically they average about 3% of the loan amount.
Unless you’ve paid for your house in full, you can expect that you will have a mortgage payment for the next several years. Most mortgage payments are due monthly on the first of the month. The payment sent to your lender will be applied toward the interest and principal of the loan. Depending on the area you live in a mortgage payment may be more affordable than your current rent payment.
Most loans that exceed 80% loan to value require private mortgage insurance. You will be required to keep the mortgage insurance until you have at least 20% equity in the home. The rates for private mortgage insurance vary by lender but are determined by your credit score and percentage of down payment.
Property taxes are an inevitable part of homeownership. The amount of taxes you’ll pay will be determined by the city or county you own in. Most lenders collect property taxes each month and put them into an escrow account. The lender will pay the property taxes from the account as they come due.
You will be required to carry an insurance policy on your home until you’ve paid your home in full. Lenders require that you carry enough coverage for the full property value. Homeowner’s insurance may also be added to your mortgage payment and set aside in your escrow account. Do as much research as possible to find the best rates on insurance.
If you’ve purchased a home that is located within a homeowner’s association you can expect to be paying HOA dues. The amount you pay will be decided on by the board of the HOA. Homeowners can attend monthly or quarterly meetings and vote for who is on the board.
Throughout your homeownership you will experience many different circumstances that require you to maintain your home. You can expect to replace major appliances, fix a leaky sink or buy new storm windows. Experts recommend that you save 1% each year in a home maintenance account. A home maintenance account should be saved for specifically fixing issues in the home and not for adding on luxuries such as a deck or patio.
Above are the various expenses to expect when buying a home. Before you apply for a loan do some calculations to see if you’ve saved enough money for the real estate purchase and other house buying expenses. Also verify that you can afford the monthly costs of a mortgage payment, taxes, insurance, and maintenance on your home. Planning financially beforehand will make your homeownership a great experience.