Don’t be Surprised by the Hidden Fees in Home Buying
So, you’re saving to buy that house you’ve always wanted, the place you can call your own. Perhaps you’ve already saved up all that money and you’re ready to start the big hunt for your dream home. Regardless of how far in the process you’ve gotten you probably have a good idea of how much you can spend on your new digs – or do you?
The web is overflowing with magical mortgage calculators where all you do is pop in a few numbers like your salary and what you “think” your taxes might be and “VOILA,” this is how much you can afford to spend every month. Even sites like Zillow seem to be taking the guess work out of mortgage payments by offering mortgage payment estimates for every home you come across. Before you start that search you may want to pump the proverbial brakes for a minute and let us give it to you straight and simple. The best thing you can do for yourself is to go into your negotiations armed with information.
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Here’s what you really need to consider when deciding how much you want to spend on your next house. And it might surprise you.
- Down Payment. The most common concern for any new home buyer typically is the down payment they will need to make in order to qualify for a home loan. Requirements are usually calculated as a percentage of the home price and will vary by the lender or financials institution you are seeking the loan from. Lenders will likely ask for anywhere from 3.5 to 20 percent of the purchase price, so this will surely be the biggest chunk of change you will need to save up for your new move.
- Home Inspection. As part of the home buying process you will also need a home inspection. While costs vary depending on where you live and the size of your property, you can expect to fork over anywhere from $300-500. Check with your real estate agent on a more accurate estimate based on your target area.
- Closing Costs. Fees on fees on fees are what make up your home closing costs. The costs due at closing are comprised of many fees including title expenses, mortgage processing fees, real estate attorney fees, appraisal fees, tax payments and more. While it sounds like a lot, some of these expenses may be fairly small. Overall you should expect anywhere between two and five percent of your total purchase price. Ask your real estate agent about using this as a bargaining chip with the seller. A lot of buyers will ask the seller to throw those in towards the bitter end of a negotiation to come to an agreement on the purchase price.
- Property Taxes and Homeowners Insurance. Just like any other bill you get in the mail, your mortgage statement doesn’t just reflect the loan amount and interest, but property taxes and premiums for homeowners insurance. You need to think of your budget for your monthly mortgage payment as incorporating all four of these expenses. Annual insurance premiums can range anywhere from 0.5 to 1 percent of your mortgage loan while homeowners insurance can be a few thousand dollars a year, depending on your home price and location
- Reserves. Some lenders may require you to have some reserves before making that big purchase. This could range anywhere from two to six months of mortgage payments in a savings account for a rainy day. Regardless of the requirement, it always makes financial sense to have about six months of monthly expenses in a savings account in the event of a loss of employment or personal emergency.
While we have outlined the standard fees associated with home buying, there are a few other things to consider as you plan your new home purchase. You may need to put a few more pennies in that home buying piggy bank of yours.
First, are you planning to hire movers? Depending on the size of your current home and the distance you need to move you could be looking at anywhere from $300 to $2000 in moving expenses.
Also, is your new piece of paradise move-in ready? You may already have some renovations in mind, some of which may not be able to wait until you’ve saved up a little more. With all the expenses you have right at move in, make sure you’ve set aside some extra cash for those necessary DIY projects.
Some of you may be stressed at the thought of all this money going into a new home, or maybe you’re rethinking your savings or budget. Well, don’t worry! According to U.S. News, investing in a home is one of the smartest financial decisions you can make right now, especially for first-time home buyers and millennials. With volatility high in other markets, the cost of constantly throwing away money in rent, and the resale values of homes on the rise, investing your savings in a home is a pretty darn good idea. Most importantly, while there are a lot of expenses that come with making this kind of purchase there’s nothing like coming home to a place you love.