Homeownership is an attainable dream for many Americans. With increased loan programs, reduced interest rates and changing guidelines this is the best time in the past decade to buy a home. However, before you get too far you need to know financially what you are getting into. At first glance you can get into a home for say 3.5% of the purchase price and have plenty left over to spare. Upon closer inspection you need money for taxes, insurance, appraisal and inspection…all before getting your keys at closing. Once in the property there are a new round of expenses you need to brace for. Homeownership can be a tremendous long-term investment, but you need to know all the costs before getting started. Here are six expenses that give you the true cost of buying a home.
Inspection & Appraisal.There are several different areas you can plan on spending if you want to purchase a home. After you set your budget, begin house hunting and eventually make an offer the first expense is your inspection. This is done to make sure the property you will be living in is safe, secure and free of anything unexpected. Assuming all goes well your lender will require an appraisal on the property. This is done to confirm the sales price property value. The inspection will cost a few hundred dollars and the appraisal as much as $400 for a single-family property. Typically, these are the only two out of pocket expenses in the process.
Down Payment. As we mentioned there are a growing number of reduced down payment loan programs currently available. Depending on your credit score you can buy with just 1% of the purchase price, up to 3.5% for an FHA loan. Calculating the required down payment is very straightforward. You simply multiply the percentage by the purchase price. For example, if you are putting down 10% on a $100,000 purchase you will need $10,000 at closing.
Closing Costs.Much has changed in the mortgage industry after the mortgage collapse. If you apply for a loan today there is full transparency regarding closing costs, fees, terms and the interest rate. Your closing costs will cover the lender fee, origination points, attorney fees, title search, title insurance and other miscellaneous attorney or lender fees. You will get a full breakdown at application that must match, or be lower, than what you have at closing. On average the closing costs will run anywhere between $2500 and $5000, depending on the loan size.
Insurance and Taxes. Without question the most commonly overlooked area of closing costs is the taxes and insurance, called your escrow. When you buy a house the new lender almost always pays your taxes and homeowners insurance for you. They always want to have a cushion in case the amounts increase. Because of this they need the insurance paid for the year upfront as well as four to six months of the taxes. The escrow can easily add thousands of dollars in the money you need at closing.
Moving Out. It is important not to overlook the other costs associated with buying a home. These won’t break the bank, but they must be noted. When you buy it means you are moving out of your existing space. If you have rented you need to have the place cleaned and looking new. Paying money for a professional clean is not out of the question. You may also need to rent a moving truck for a few hours. Depending on usage this can cost you over $100 for the day and much more if you use overnight.
Moving In. Buying a house means furnishing it. You need to consider couches, pictures, mirrors, appliances and even dinnerware. If you have a yard you are going to need a lawnmower. If you have a driveway you will need a shovel or snow blower. In the garage alone, you will need a rake, shovel, seed for the yard, tools and much more. You can get these at your leisure, but you need to know you will need them at some point.
The cost to purchase a home has come down quite a bit in recent years. The costs and expenses can seem overwhelming at first but when you consider what you pay for rental security deposit and monthly rent, homeownership is a viable option.