How much money do you need to buy a house?
Every home for sale has a price, but the actual cost of buying a home is much greater, both at the time of purchase and each month thereafter. Before committing to the long term, it’s important to know the costs of buying a home.
Here are some of the most important – and most expensive.
NerdWallet Guide to COVID-19
Get answers to your questions about your mortgage, travel, finances, and keeping your peace of mind.
One-off costs of buying a house
The advance payment is always a big part of your home buying efforts. If you can’t make the traditional 20% down payment, you may be able to get a loan with less money up front, but then you are faced with an increased cost of borrowing and higher monthly payments.
Recommended: Put in as much money as you can without depleting your financial resources on moving-in expenses such as furniture, initial maintenance, and maybe a new coat of paint. If you need a boost in the down payment department, explore state aid programs for grants and even forgivable loans.
“Explore state aid programs for grants and even forgivable loans.“
Down payments are often a bit of a compromise, balancing what you can realistically save over a period of time with your desire to buy a home sooner rather than later.
Closing costs are lender and third party fees paid at the close of a real estate transaction. For a $ 300,000 home, you can expect to pay between $ 6,000 and $ 15,000 in closing costs.
You will receive an official Loan estimate of lenders you are making comparisons with that outline those closing costs up front, so there shouldn’t be any surprises. And you’ll have time to negotiate some of the costs and look for lower fees on others.
There is “mortgages without closing costs,“But you’ll have to consider when that might be a good choice. Regardless of the loan structure, it will increase the monthly payment slightly, which means you’ll pay more in the long run in exchange for paying less at closing.
Owner’s current expenses
Nearly half of home buyers don’t compare home loans, according to the Consumer Financial Protection Bureau. This can inflate your monthly mortgage payment and cost you a large amount of money over time. U.S. homebuyers could save $ 400 per borrower in the first year of a 30-year mortgage by compare mortgage rates among lenders before submitting an application, according to a NerdWallet Analysis.
Monthly payments are the most predictable cost associated with buying a home. One error several first-time buyers to do is to think that like rent payments, the mortgage is the total amount they owe each month. As you will see below, this is not the case.
The tax authorities usually call once or twice a year, but property tax laws and policies vary by state and county. Your real estate agent should be able to give you an overview before you buy.
Local governments can raise property taxes to cover municipal projects or expenses, so don’t assume they will remain stable. Increases in the home’s assessed value, whether due to renovations or general market conditions, also cause property taxes to increase periodically, which could increase your monthly payment if your lender is set up to pay taxes. in your name.
Home and risk insurance
Like taxes, these two types of insurance vary by state and region and can also be included in your monthly mortgage payment. The National Association of Insurance Commissioners estimates that the average annual premium for the most common form of home insurance was nearly $ 1,400 in 2016. Insurance costs against risks will also be determined by risk factors in your area, such as floods and earthquakes.
You can usually reduce your costs if you bundle homeowners with your auto or life insurance policies.
If you do a advance payment less than 20%, you will have to pay mortgage insurance, which can represent up to 2% of the loan amount per year. These premiums protect the mortgage lender in the event of default on the loan.
There may be an initial amount paid, along with premiums due each month, added to your loan payment until the remaining principal balance on the mortgage falls below 80% of the home’s value. Your lender can automatically waive mortgage insurance charges when you owe 78% of the principal or less, but until then, that’s an additional cost to factor into your monthly budget.
HOA, co-op or condo fees
If you’re buying into a planned development with shared spaces and a homeowners association, or buying a condo or co-op, you’ll likely have a monthly appraisal on top of your mortgage payment. This money pays for improvements to the entire complex or shared amenities, such as landscaping or painting, or building-wide utilities such as electricity.
In expensive urban areas, condo appraisals can rival mortgage payments, so pay close attention to these costs before you buy.
Utilities and all the rest
Once you’ve crossed the finish line of buying a home, you might think you’re immune to financial hurdles. But there are utilities to pay for, upkeep – like garden maintenance and snow blowing – and the occasional plumbing breakup. You can budget for some of these current expenses; surprises, not so much.
Do you know that emergency fund that financial advisers suggest we all have? You might want to supplement it a bit with a “rainy day” home ownership fund. It’s for those small to large expenses that insurance won’t cover, like the water heater that causes a leak in the middle of the night.
Setting aside money for unforeseen household expenses will help you avoid draining your last resort emergency savings or incurring credit card debt. Consider saving at least 1% of the home’s market value each year as a long-term household maintenance and repair fund.
How to prepare to buy a house
If you’ve decided that home ownership is right for you, you’ll need to convince a lender of that as well. This means that your credit is in good shape, that you are not struggling with a load of debt, and that you have a large cash cushion for the expenses that you will face.
Lenders look at a variety of metrics to determine if you are an appropriate risk for a six-figure home loan. How much you owe for what you earn (lenders call this your debt to income ratio) plays a major role in the approval process.
To prepare for the mortgage application process, there is one key thing you will want to do: check your free credit score and do a debt gut check. Do you have a credit card or two with lingering balances that you can pay off? Every little improvement you make can add up and, ultimately, boost your credit score. As a result, you will likely get a better interest rate on your loan and save a lot of money.