Buying your first house is an exciting time. You are ready to make the plunge and purchase a home of your own. It can be a little scary, too. This is probably the most money you have ever spent and the biggest investment you will make. There are expenses that go along with purchasing a house. Some are one time expenses, while others are annual for the life of the house. If you know about them and begin to save money for all those items that pop up along the way, you are going to be much better prepared when they happen. When considering your first house, keep these hidden cost in mind when you are deciding if you can afford to buy a home.
You have made on offer on a house and it is accepted. You are that much closer to home ownership. If you do not know anything about purchasing a house, you may be unaware of closing costs. This is the money you pay for the processing and administration of buying the house. This money is typically separate from your mortgage and you must come to the closing on the house with a check for these costs. It is usually somewhere between 2 to 5 percent of the cost of the house. Closing costs includes fees such as:
Appraisal is the cost you pay to have someone assess the house and make sure it truly is the value that the seller claims it is. Lenders always wants an appraisal so they can ensure the value of the house is not less than how much money they are lending to you. It protects the lender and you during the purchase of a house.
These are fees charged by the lender for their administrative costs to handle items such as wire transferring and pulling your credit record. This fee may differ based on the lender.
These may also be called attorney fees. These fees include items such as government filing, notary, escrow and any other charges resulting from the deed for the house being transferred to your name.
These fees may be charged separately from the title or attorney fees. These may include property taxes and insurance that is put into an escrow account. This money is put into an escrow account before you pay any mortgage payments.
You have to pay interest charges from the date of your closing until the first of the next month. So, if your closing is on the 8th of the month, you have to pay the interest from the 8th of the current month until the first of the next month.
Homeowner’s Association Fees (HOA)
If you plan to buy a condo, you always have to pay a fee for maintaining the surrounding area such as the sidewalks and interior of the building. This is often a monthly fee. If you are purchasing a house in a community, you most likely have HOA fees. This covers snow removal, club house and pool maintenance (if applicable). This could be a monthly charge, but it might be annual.
Private Mortgage Insurance (PMI)
Most lenders want you to have a 20 percent down payment on the house you are going to purchase. If you have a down payment that is less than 20 percent and you are getting a conventional loan, you most likely have to pay PMI. This is an additional cost to your mortgage payment. This gives the lenders a sense of security, since you do not have 20 percent equity in the house. This provides insurance to the lender if you default, or stop paying, the mortgage.
This is insurance that you have to pay on the mortgage. The cost of this insurance depends on many factors, such as income, your credit score, the amount of your current debt, length of mortgage and down payment. Typically the amount of annual interest that you pay is around 3 to 5 percent.
There are varying types of insurance you can get on your home. The amount you pay varies based on the amount of coverage that you have on your home. Where you live also impacts the cost of your insurance. For example, if you live in an area that tends to flood, you may have to pay more in insurance. Home insurance typically costs you more than $1,000 per year. However, your insurance can cost much more depending on items such as your deductible. It is important that you talk to an insurance agent to confirm how much and what type of insurance you really need. Typically, your home insurance is held in escrow and paid with your monthly mortgage payment.
Property taxes are also held in escrow, like your home insurance, and paid with your mortgage payment every month. When your property tax is combined with insurance, it is called Principle, Interest, Taxes, and Insurance (PITI). The amount of your property taxes depend on where you live. Also figured into your property taxes are school taxes. The amount of taxes you pay are based upon the school district in which you are buying a home. You can find out the current school taxes for you school district before you make an offer on a house.
You have many utility bills to pay when you own a house. You may not be used to paying utility bills depending on where you lived previously. If you were renting an apartment, you may have had to pay some or no utilities at all. Some of the utilities you may have to pay are gas, water, and electric. You also may have to pay for trash pickup and snow removal. You also have to pay a sewer bill. The price of your utilities depend on how much you use your water and heat, etc. There are some ways you can put a cap on how much you spend on certain utilities. You can perform an energy audit on your home to determine how energy efficient it is. You could purchase energy efficient appliances. You could check your insulation and make sure you do not have any water leaks to make sure your house is efficient. This way you will not spend a ton of money on your utilities. You can also set your heating two or three degrees lower and your air conditioning two or three degree higher. This simple change makes a larger difference in your monthly bill than you may realize.
Items in your house require regular maintenance. Depending on the time of year, different items require various types of maintenance. You can print out a checklist of items on which you should perform regular maintenance so that you can stay on top of it all. If you do not take regular care of the items in your house, it can cost you a lot more in the long run. You should also consider saving money to put aside in an account that is only for the maintenance costs that come up.
When something breaks or ages when you are renting a home, all you have to do is pick up the phone and someone shows up to fix whatever needs repairs. You do not have to pay out of your own pocket for it. As your house ages, you will have to make regular updates and renovations to your house. The home inspection you order before purchasing can help you to predict these renovations that will be necessary immediately and ones you might be looking to update in the future. While you make those updates, you can also make upgrades to the house. Things always come up at the most unexpected times. You may have a roof or windows that needs to be replaced. In many cases, you may not be able to make those changes yourself. It is estimated that you will pay anywhere from 3.6 percent to 4.5 percent of the original cost of the home on regular maintenance and renovations. You typically pay less for a newer house and more for an older house.
Another point that you should consider when buying a house is your interest rate. Your credit score makes a difference on the interest rate you receive. When you are given an interest rate that you like, you can lock in that rate. However, there is a time limit for which you can be locked in to that rate. You should make and offer, have it accepted, and be approved for the mortgage so you can get that rate.
When it comes to buying your first home, there is much to consider. It can seem overwhelming and you want to make sure that you do not overlook something. You want to make sure that you consider all the costs associated with buying a house, as well as continued cost of home ownership. Capstone Realty Consultants is here for all your home buying needs. We will be right beside you through every step along the way. We have consultants full of knowledge and expertise to answer all your questions. Contact Capstone Realty Consultants today and schedule an appointment.