Home prices look like they're finally beginning to cool off, and summer is historically a very busy time for real estate. So, naturally, a lot of new buyers might be considering taking the plunge and buying their first house.
Before you jump in, be aware that the price you agree to pay is by no means the true cost of buying the house.
With today's mortgage rates, the principal and interest payments on a 30-year, $200,000 mortgage would be about $975 per month.
However, there are several other expenses you need to take into consideration, some of which are one-time costs and some are recurring and even growing over time, like property taxes.
This is a long list of fees and other charges you'll have to pay in order to finalize your mortgage. There are too many individual costs to mention here, so I'll just name a few of the larger expenses.
The bank will order an appraisal to confirm the home's value, and this will cost around $450. The escrow or closing fee can cost $500 or more, depending on the home's price. Title insurance costs can go well into the thousands, some states require a property survey (around $400), and the closing attorney will charge you at least $400.
Additionally, your lender will charge processing and underwriting fees totaling around $2,000.
Then, you'll have to pre-pay six months to a year of taxes and insurance up front. Generally, closing costs add up to 3-5% of the home's price. If you want to see a more complete list of costs, Zillow has one here.
If you put less than 20% down when buying, you can expect to pay mortgage insurance, especially with an FHA loan. And, you'll most likely be responsible for an upfront payment as well as an additional amount tacked onto your monthly mortgage payments.
With conventional financing, the premiums vary, but to give you an idea, the FHA has set amounts. You'll pay an amount equal to 1.75% of the mortgage amount upfront, as well as a recurring premium of 1.35% of the loan balance for most loans, which gets divided by 12 and added to your payments.
So, on a $200,000 loan, expect to have $3,500 added to your closing costs and about $225 added to each payment.
Taxes and insurance
Property taxes are assessed by the county where you live, and go toward schools, emergency services, and other local government activities. In some places, your garbage collection and sewer charges are added into your taxes.
Taxes vary widely depending on where you live. A typical 2000 square foot house in South Carolina might have annual property taxes of about $1,000, while the same house in New Jersey could come with $9,000 in taxes. Your tax bill will be divided by 12 and added to your payments, so it's definitely worth checking the property's tax records before making an offer.
Insurance also varies widely depending on the location-specific hazards facing your home.
For example, coastal homeowners with a mortgage may be required to obtain windstorm and flood insurance, in addition to regular homeowner's insurance. Insurance will also be added to your payments on a monthly basis.
Don't forget about maintenance
Last, but certainly not least, is the cost (both monetary and time) of maintaining a home.
Simply put, over time things break and need fixing. And, some of these things can be quite expensive.
If your central air and heat unit dies, for example, you'll need several thousands of dollars available for a replacement. And, the older your house is, the more you should plan to spend on it.
If your home has a yard, you'll need to invest in some lawn equipment, and be prepared to spend a considerable amount of time doing yard work, or else the property's appearance will begin to suffer very quickly.
Know what you're getting into
My purpose here isn't to talk you out of buying a house. Quite the opposite actually. The goal is to get future homebuyers prepared and knowledgeable enough to make wise decisions.
Make sure you know the true cost of the home you're considering, so you only buy as much house as you can truly afford and so that you don't buy until you're ready for the expenses.
With these added costs, that $975 monthly payment can easily become $1,300 or more, not to mention the upfront expenses.
However, if you do your homework and know this from the start, homeownership can be one of the most rewarding experiences of your life, both financially and emotionally.
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