The median home price in the United States has risen more than 30% in the last few years. While interest rates fell substantially at the beginning of 2020, the housing market managed to take full advantage of that. Since mortgages became more affordable, more people decided to invest in real estate around the country. This is one of the main reasons why the housing market has grown to where it is today. However, the cost to buy a house is not the listed price alone. Buying a new home comes with many other costs that you need to consider to get a true idea of how much you actually need to purchase a home. While there are many different categories, it might surprise you that it’s not as much as you may think.
Are you thinking about buying a home? You’ve found the right blog. Here’s everything you need to know about buying a house, along with the most common home-buying costs people often overlook.
Deposits and Down Payments related to costs to buy a home
A down payment is an initial deposit that you pay upfront for your home. This initial payment typically ranges from 0% to 20% of the home’s total purchase price. When you put a down payment on your home, it reduces your loan amount so that your monthly payments are lower as well.
While down payments can range, some banks and mortgage companies may require you to put a down payment depending on your loan type. This can help lower the risk of the mortgage since the home will already have equity in it. In most cases, banks suggest that you put at least 3% of the mortgage amount as a downpayment.
For example, if the cost of a home is $1 million, a 10% down payment would mean that you pay $100k upfront. This means that you only need to apply for a $900k mortgage to cover the rest of the property. Taking a smaller loan ripples down into lower monthly payments, lower insurance rates, and less total interest paid over the entire loan term.
Cost to Buy a House: Mortgage Payments
A mortgage is a special loan that is linked to a property as collateral. This means that if you fail to make your payments, the bank or mortgage company reserves the right to repossess the property. Mortgages are incredibly popular as they are very simple to apply for and come with favorable interest rates.
Mortgages are loans that are taken over 10, 15, 20, or even 30 years. The longer your loan term, the more interest you will have to pay. However, it also means that your monthly payments are lower. Since inflation has an effect on the value of money, many people prefer the longer term.
While mortgage companies make more money off you if you take longer to pay, you can always shorten your loan term by paying more into your mortgage account. This means that if you have extra money laying around, you can put it towards your home and lower the amount of interest you have to pay.
Cost to Buy a House: Mortgage Insurance
An important cost to add to your mortgage payment every month is your mortgage insurance. This kind of insurance is a specific policy that covers you if you ever default on your payments. Private mortgage insurance (PMI) is often compulsory with most traditional mortgages.
While you don’t need to take private mortgage insurance with some special mortgage programs, it’s typically required for loans with a down payment of less than 20%. This is because the risks are a lot higher with these mortgages.
Mortgage life insurance may sound familiar but is a different insurance policy. A mortgage life insurance policy covers your heirs in the event that you pass away while still owing mortgage payments. This can help protect and pass down your home without the fear of having to sell it to settle existing debts.
Cost to Buy a House: Closing Costs
If you think that the listed price is all you have to pay for your home, think again. There are often a few closing costs to consider when finalizing your deal. This includes the mortgage company’s loan fee, inspection fees, appraisal fees, title insurance, broker fees, and transfer tax.
While the loan fee is fairly simple, the inspection and appraisal fees are incredibly important. This is because the inspection and appraisal can help you negotiate the final price with the owner. If the inspection uncovers any damage that you may not have noticed, you can use it to lower the listed price of the property.
Title insurance, broker fees, and transfer tax is another set of notable expenses that need to be paid to finalize the deal. The title insurance ensures that you have full ownership of the home and protects you against anyone that may make a claim in the future. Broker fees are usually paid to the agents that helped with the sale and is usually a percentage of the final sales price.
Transfer tax can range depending on the city, county, or state that you’re in. This tax is levied on the final selling price of the property and acts as a transaction fee every time the property changes hands.
Moving Costs
A hidden cost that many people overlook is the cost of moving in. Moving companies can end up costing over $1,000, even for local moves. If you’re buying a home in another city or across the country, you should budget a few thousand dollars to facilitate the move.
Professional movers are not cheap. However, they are incredibly helpful as they can help you box, pack, transport, and unpack your things for you. This can save you tons of time to make your move as easy as possible.
While movers are incredibly helpful, they’re also in high demand. This means that you should plan and book your move a few months in advance to make sure that everything goes smoothly.
Furnishing
Even if you have furniture, you may want to set some money aside to help furnish your home. While these furnishings are not a need, they can go a long way in making the property more comfortable for you and your loved ones. In some cases, these furnishings can help reduce monthly maintenance costs as well.
For example, if you decide to replace the lights in the home with energy-saving LEDs, it can help reduce your monthly utility bills every month.
Maintenance
Once the home is in your name, the costs don’t stop there. This is because it’s now your responsibility to maintain the home. This includes essential repairs to cover the cost of things that break over time.
Maintenance and essential repairs can cost anywhere from a few hundred dollars to a few thousand dollars each year. However, it’s best to budget 1% of the property’s value every year for essential maintenance.
Why Buy Property?
Investing always comes with a level of risk. This is why it’s so important to build a diversified investment portfolio, as the risk profile is a lot lower. When it comes to diversifying your portfolio, there aren’t many options as good as property.
This is because property is often referred to as one of the safest investments you can make. Property can help generate an income if you rent it out, but you can also benefit from the general appreciation of the asset. This makes it a great investment for those looking to create new streams of income in preparation for retirement.
Buying vs Renting Property
One of the most important things to consider when buying a home is whether it may be more affordable to rent. Deciding between renting and buying is a major decision, as investing in a home is often the biggest single investment people will make in their lives.
When making your decision, it’s important to understand that renting is solely an expense while buying a home is considered an investment. While there are some expenses associated with buying a property, the entire transaction is still a great investment over the long term.
This is because the money you spend on your home builds equity in the property. You can then access this equity later by either selling the home or refinancing with your mortgage company. In addition to this, you can still benefit if the price of the property also increases.
What’s The Real Cost To Buy a House?
The cost to buy a house goes further than just the list price. While the list price gets broken down into your deposit and your mortgage, there are smaller costs that come with your new home. This includes the costs associated with moving in, buying furniture, doing essential repairs, and even a few renovations that you may want to get done.
Are you looking for your dream home? Once you finalize your budget, take a look at our availablehomes today and contact us to connect!
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