What Expenses Should You Expect When Buying a House?
Buying a home is often one of the most expensive purchases that a person will make in their lifetime, but that doesn’t mean that it is the only expense. The dollar tag on a home isn’t the only expense that you should expect when you take the leap and make a home purchase. Associated expenses will always pop up when you make the purchase, but as long as you have a solid understanding of what they are, you will be prepared.
Besides the Down Payment, Here are Other Fees and Expenses to Expect When Buying a House
There is more to buying a home than simply finding one that you love and signing some paperwork. There will be expenses to expect before, during, and after a home purchase—all independently of the actual home costs.
Some of the expenses that you can expect will be related to different steps in the purchasing process. For example, you might end up paying for the property to be inspected, or for a notary when you complete the actual sale. Loan insurance and location specific taxes can also lead to unexpected costs. Though these costs might vary depending on location and the transaction, it can really help to be prepared for unexpected costs to arise, even after the purchase is complete.
Costs Associated with Buying a Home
There are several basic costs that a homeowner can expect to grapple with when purchasing a home. Some of them are part of the acquisition of a property while others are long-term costs that will be paid out with time. Being aware of these common payments can help you to mentally and financially prepare for the outcome.
The down payment on a home is a very common and expected cost. While certain kinds of loans will allow you to purchase a home without a down payment, these options are not available in certain circumstances. A significant amount of new homeowners end up paying this expense.
The cost of a down payment can vary significantly. The cost is often dictated by the overall price of the home, as well as the expectation of the loan. In some cases, paying a higher down payment can help you to save money in the long run, so don’t skip on it unless you really need to.
Your closing costs are actually several different costs in disguise. These costs can be taken from a long list of potential costs, with the prices of each varying significantly. In general, closing costs can add up fairly quickly depending on the circumstances.
These costs are a combination of costs pertaining to the home purchase. You might end up paying for loan processing, homeowners insurance, mortgage insurance, attorney fees, or property tax. These fees can add up quickly and have been known to surprise new homeowners who attempt to purchase a home without the help of a real estate professional.
Property tax is a common and expected fee that every homeowner will ultimately end up paying. The price on this may vary depending on the location of the home, the amount of the loan, the value of the home if it changes, and the expected advance. Homeowners often end up paying at least half a year’s worth of property taxes in advance. Sometimes it will be more, other times it will be less. Either way, this is one homeowner expense that doesn’t go away.
Homeowners and Mortgage Insurance
Homeowners insurance is a specific kind of insurance designed to protect the home in the event that something goes wrong. Most lenders will require this if you are borrowing more than 80% (less than a 20% down payment). This kind of insurance can be used in the event of a fire, a horrible storm, or even to replace your roof when the time comes. It is very important to have, and is often a requirement.
Mortgage insurance is insurance that is designed to protect the lender in your mortgage agreement. As we all know, sometimes life can go wrong—and for this reason, some people end up unable to pay for their homes. Mortgage insurance is a way for the lender who provides your loan to ensure that they won’t be completely without pay if you are unable to fulfill your agreement. Certain kinds of loans require it, and it is common for this to be a requirement if your down payment is on the low end. While not everyone has to pay for it, it is a fairly common expense for most people.
Most single family homes do not have HOAs, but if you live in a gated area or condo this will be very relevant. A homeowners association (HOA) is a group that has been selected to keep a neighborhood nice. This group will be responsible for ensuring that homes adhere to some general guidelines—and while they have a fairly bad reputation, they are also very effective at protecting home value. A homeowner’s association can ensure that your neighbor doesn’t keep garbage all over their front lawn or paint their home a wild color that might look bad. The fees you pay here will be your contribution to ensuring that your neighborhood stays in good order.
Fees You Should Know About Before Buying a Home
Before you buy a home, start by acknowledging the fact that other expenses will apply. Even though some might not apply to you, there will always be more to pay beyond that base cost. A down payment, homeowners insurance, title fees, mortgage insurance, and real estate commissions should all be expected costs in most cases.
The costs of buying and owning a home can add up very quickly, which is why it is important to prepare for them. Planning for these unexpected costs will make the entire home buying process significantly more approachable for you. To receive the best mortgage rates, you will want to save money, improve or maintain your credit, and compare the different lenders that you can work with. Partnering with a good lender, accountant, or financial planner can help you to get your financials in order. It helps to have someone who knows the ins and outs of financial planning!