Home Buying Costs You Need to Know About
Hey there first-time home buyers—this post is for you! Buying a home is a major investment and a most worthy endeavor. We want to make sure you have all of your bases covered as you embark on this exciting new adventure in your life. Preparing today for tomorrow's hopes and dreams is an important step in attaining your goals. We want to help you to plan wisely, and feel confident and prepared, as you pursue the purchase of your first home.
Here are some of the biggest financial considerations that come with home ownership. It's not just the downpayment and mortgage payments that you have to consider—so let's make sure you're fully informed on the home buying costs you really need to know about before you commit. Don't worry, with this knowledge comes the power to make the best buying decisions for your situation. Ready?
It is thrifty to prepare today
for the wants of tomorrow.–Aesop
Let's start by getting familiar with the most common costs associated with home ownership. They may not all apply to your particular situation, but it's best to get well acquainted with these terms so you are in-the-know when these topics come up or if you have questions along the way.
It's a given that you'll need a down payment to buy a home. But how much? A standard down payment is 20% of the purchase price, but other offers may be available depending on your credit status and eligibility for programs. On FHA loans, your down payment can be as low as 3.5 percent. Your individual financial situation heavily influences what is required. A lower down payment is not always desirable—keep in mind that a lower down payment equates to greater interest costs over the course of the loan. You always have the option of scaling down to a smaller home so you can afford to pay 20% down. Talk with your real estate and lending agents and be realistic about what you can comfortably afford.
Private Mortgage Insurance (PMI)
When a homebuyer makes a down payment of less than 20 percent, the lender requires the borrower to buy private mortgage insurance, or PMI. This protects the lender from losing money if the borrower ends up in foreclosure. PMI also is required if a borrower refinances the mortgage with less than 20 percent equity. With a lower down payment, PMI will be required by the lender to accommodate the higher risk. PMI is often included in the monthly mortgage payments, but could be included as an up-front charge depending on the level of risk you pose. PMI is a side effect of a low down payment or other risky loan terms.
Homeowners insurance covers losses and damages to an individual's house and to assets in the home. Homeowners insurance also provides liability coverage against accidents in the home or on the property and can be acquired separately or by the lending bank. If you who prefer to get your own insurance policy, compare offers and pick what works best for your needs. You will need proof of homeowners insurance and typically have deposited money for the first few payments before your home purchase can be completed. Aside from just being a smart idea, insurance is required by the bank to show you intend to take care of the home and are thus a good bet to repay the loan.
Though it is handled differently depending upon where you live, you will likely pay property tax on your new home. In North Carolina, property tax is a chief source of funding for county and city governments, schools and certain district-level services, including police and fire protection, and water and sanitation services. In Emerald Isle, the Carteret County Assessor is the official responsible for listing and assessing all real estate. You can find more Emerald Isle, NC property tax information here. Also check out this NC property tax calculator tool.
Closing costs consist of a series of fees that you need to pay when it's time to sign the deal on your house. A bewildering variety of fees show up at or near closing, including appraisal fees, survey costs, title insurance, home inspection, attorney’s fees, recording fees, and any points (an upfront payment that lowers your interest rate). HUD estimates that closing costs equal about 3 to 4 percent of your home's value. Fortunately, the Consumer Finance Protection Bureau (CFPB) has mandated that closing documents more clearly outline the individual costs.
Unless you have some loyal and dependable friends with really strong backs to help you move, you're probably going to have to hire help. Depending on how far you are moving and how much stuff you have to move, moving expenses can be significant. Any time you have to hire professionals you need to carve out room in the budget. Moving within 20 miles will probably cost $1,000 or so. A cross-country relocation could cost upward of $5,000. For that reason, it pays to think carefully about what you're putting into the moving truck. Minimizing your stuff is a really good idea.
If you are buying your first home, there's a good chance you are coming from a situation where somebody else (your landlord, a property management company or your parents) was responsible for maintaining the property where you live. It's a good idea to realize that you will be responsible for keeping up your property as a homeowner before you commit to a purchase. It is recommended that homeowners set aside about 1-2 percent of their home's purchase price to cover maintenance costs, including the purchase of lawn care equipment and household tools, in the first year. Over time, you'll get a better idea of the annual maintenance costs for your home.
Monthly Bills & Payments
Electricity and gas and water, oh my! Then there's cable tv, internet and more monthly charges that are all part of the home ownership experience. There are likely to be setup installation charges that can cause temporary cash flow problems if you're not prepared for them. It's prudent to cut back on the monthly expenses wherever possible by not spending money on things that aren't really a high priority in your life. As you settle in to home ownership and get a better feel for what you're paying out each month, it's best to start with the basics. You can later reassess your budget and splurge on some extras when you're ready and able.
According to a recent study by HomeAdvisor, within the first year of homeownership, 46 percent of owners spent more on projects than they had anticipated, and 57 percent encountered unexpected projects. This is especially true if you were a renter and had no idea of the costs of routine maintenance and repairs. Not only do you have to maintain your new home, but you may need to stock it with appliances or replace older ones. If you are moving from a smaller to a bigger place, you may have to purchase additional furnishings to fill the larger space you now own. The old adage rings true here: Expect the unexpected.
Homeownership can be rewarding as long as you're realistic about how much it will cost you. It may seem overwhelming, but there are plenty of resources available to you as a new homeowner, both online and in person. Take advantage of these resources, plan your purchase, and familiarize yourself with the typical costs, and you can enjoy a smooth transition into home ownership. Best wishes!
A man who both spends and saves money is the happiest man, because he has both enjoyments.–Samuel Johnson