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Homebuying Costs

 

Home Purchase Expenses

Don't Get Caught by Surprise! 

Let’s look at the costs involved in buying your home. To get a clear picture of what’s within your reach, remember to factor in expenses beyond your down payment, such as:

  • Closing costs
  • Appraisal fees
  • Home inspection fees
  • Homeowners insurance and mortgage insurance
  • Property taxes
  • Homeowners association (HOA) dues
  • Home maintenance, repairs, and utilities
 

 

Let's Explore Some Common Costs

Down Payment

A down payment is the amount of money you pay upfront towards the home’s purchase price instead of financing it through a mortgage.

While it is often recommended to have a down payment of 20%, most first-time homebuyers do not have the funds to pay such a large sum of money. First-time homebuyer programs may allow for a down payment as low as 1%.

Example: a 1% down payment on a home with a purchase price of $400,000 would be $4,000.

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Interest

The amount of interest you will pay each month is calculated based on the total amount of money you borrow to purchase your home and the interest rate of your loan.

Closing Costs

Closing costs are all the fees associated with the financing of your new home and will be paid by you when you sign your mortgage loan documents. These fees will vary, but they are typically about 2-5% of the purchase price of the home.

Closing costs can include, but are not limited to: application fee, credit check fee, origination and/or underwriting fees, title insurance, and title search fee. In some situations, appraisal fees and home inspection fees can be rolled into the closing costs. It is important to note that your closing costs do not include your down payment. In some cases, the home seller may be willing to cover some or all of your closing costs.

Appraisal Fee

An appraisal fee is the payment made to an appraiser to evaluate how much a home is worth (estimated property value). An appraisal fee tells you if the price you are paying for your home is more or less than the market value of the property. Appraisal fees can vary based on the size of the home, but an average single family home appraisal generally costs around $500.

Home Inspection Fee

A home inspection fee is charged by a qualified home inspector for assessing the condition of a property, such as heating and cooling systems, plumbing, electrical work, water, sewage, as well as some fire and safety issues.

A home inspection helps the buyer determine the condition of a property and if there are any maintenance issues or potential costly repairs. The results of a home inspection can play a part in price negotiations and may force the seller to correct any issues with the home prior to the sale. Home inspection fees generally average between $300-500.

 

 

Post-Purchase Costs

Think of your monthly mortgage payment like paying rent, but with some added costs you might not see in a rental payment.

Question: What is included in your monthly mortgage payment?

Your monthly mortgage payment includes principal, interest, taxes, and insurance (lenders may refer to this by the acronym: PITI).

The total cost of your home loan and other expenses will be your monthly payment throughout the life of the loan. Let’s explore some extra costs you’ll need to budget for as a new homeowner. 

  • Homeowners Insurance

    Homeowners insurance protects you financially from unexpected events such as a fire, flood or other natural disaster, theft, or vandalism. Most mortgage lenders will require you to maintain some form of homeowners insurance as part of your loan agreement. Homeowners insurance is like car insurance, as there are many different options available, and your coverage selection will affect the amount you pay each month. It is a good idea to get multiple quotes when shopping for coverage to help keep this expense as low as possible.

  • Homeowners Association Fees
    • A homeowners association (HOA) is an organization in a subdivision, planned community, or condominium building that makes and enforces rules typically designed to help preserve and enhance the property values of the homes within the communities overseen by the HOA. HOA also oversee the maintenance of certain common areas such as community pools, gyms, club houses, and landscaping.
    • While not every home buyer will have to pay homeowners association fees, many homes are located in communities where homeowner association fees are assessed and the home owner is responsible for paying these fees. HOA fees can be charged monthly, quarterly, and/or annually depending on the HOA. It is a good idea to find out if a home you wish to purchase has an HOA and what fees you could expect to pay as a result.
  • Mortgage Insurance (PMI - Private Mortgage Insurance)

    If your down payment is less than 20% of the purchase price of your home, you may be required to pay PMI. PMI is a type of insurance that protects the lender if you default on your loan and will increase the amount of your monthly mortgage payment. However, PMI isn’t something you will have to pay for the life of your loan. Generally as you pay down your loan and build equity, you will be able to have PMI removed from your home loan.

    Question: What does it mean to build equity in a home?

    Home equity is the difference between the amount you owe on your home loan and your home’s current market value. When you purchase your home, your home equity is the same as your down payment.

  • Property Taxes
    • Property tax is a yearly fee charged by your local government to support public services in the community such as police and fire departments, schools, and road maintenance. Property taxes will vary based on the home you purchase since they are typically determined by your local government’s tax rate and the assessed value of your property.
    • It’s important to note that “assessed value” is not the same thing as “appraised” or “market value”. Property taxes are not set in stone and can fluctuate over time. Property taxes are typically included in your monthly mortgage payment, along with your principal, interest, and homeowners insurance.

 

 

Other Possible Monthly Budget Expenses

Utilities

  • Utilities could become a larger portion of your budget if you are going from a small apartment to a house with more square footage.

Trash Removal

  • Trash services are often included as part of your rent, but could become an added expense when you own your home and you pay directly to a trash removal company or to an HOA.

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Determining how much home you can afford to buy can seem overwhelming. It is a good idea to make an appointment with an experienced loan officer to help you put together a monthly budget to determine your maximum home purchase price based on your monthly income, budget, and a monthly payment that is right for you. A real estate agent will typically require you to see a lender before they show you homes.

 

 
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Disclosures

Membership requirements apply. Restrictions and requirements apply. Equal Housing Lender. Air Academy Federal Credit Union: NMLS# 454287