Buying a new home is a big deal at any time of life. But your first home purchase is something that often marks a huge life change, too. Many of our members buy homes when they get married or start a family.
At Addition Financial, we find that first time homebuyers are sometimes unprepared for all the costs of buying a home. That’s because most of the time, people focus on the mortgage and don’t talk about the other costs. And – as you might expect – those additional expenses can be a rude surprise.
With that in mind, let’s talk about the true cost of buying a new home. Here’s what you need to know.
The first expense is your down payment. The rule of thumb used to be that you’d need to put down 20% of the purchase price as a down payment. That’s changed, though. On an FHA loan, you can get a home with a 3.5% down payment.
That said, the average down payment is usually between 5% and 10% of the purchase price. For a home selling for $300,000, you’d need between $15,000 and $30,000 as a down payment. There are programs that help homebuyers cover the costs of the down payment that you can read about in this blog.
Your mortgage payments must be made monthly. The cost will vary greatly based upon the value of your home, the amount of your down payment and your interest rate.
Mortgage Application Fee
Most lenders charge a mortgage application fee of between $50 and $100. This fee is meant to cover the costs of:
Running credit reports for all purchasers
Verifying your employment
Verifying your income
Reviewing your tax returns
It also covers the time your loan officer spends following up with you and evaluating your application.
Home Inspection Fee
Before you close on your new home, you’ll need to have it inspected. Typically, the cost of the home inspection is covered by the buyer because it’s meant to protect them by identifying potential structural issues or damage prior to the sale.
According to Realtor.com, the average price of a home inspection in the United States is between $300 and $500. The cost may vary depending on your location and the size of the home you’re buying.
Closing costs include everything that happens when you close on the purchase of your new home. That means:
Property appraisal fee
Document preparation fee
Survey fee (to verify property lines)
Wire transfer fee
On average, the closing costs are between 2% and 3% of the purchase price.
When you buy a new home, you must buy insurance to protect yourself. We’ve already mentioned the title insurance, which you’ll need for the closing.
Earthquake or flood insurance (the latter is a must in Florida)
If you put down less than 20% of the purchase price as a down payment, you’ll also need private mortgage insurance. PMI premiums are often added into the monthly mortgage payment by your lender, since the insurance protects the lender in the event that you default on your mortgage.
Property taxes must be paid on a quarterly basis. They’re based on the appraised value of your home. The rates can vary greatly from location to location – and may even vary within the same state or county depending on local laws.
Before you buy a home, find out what the property tax percentage is in your area, keeping in mind that there may be county and local taxes. Make sure to take the amount into consideration when you’re deciding if you can afford a house.
The final cost associated with buying a home is the cost of utilities. If you’re thinking that you already pay utilities when you’re renting, you’re right – but it’s not as simple as that.
As a homeowner, you’re responsible for all utilities, and as a renter, you may not have been. For example, as a renter you probably had to pay electric, natural gas, heating, phone, cable and internet bills. Those expenses will continue after you purchase a home. However, you may end up paying more for them depending on the size of your home.
In addition to those expenses, you may also be responsible for:
It’s important to estimate how much you’ll pay for utilities before you buy a new home. One way to find out is to ask your real estate agent or the current homeowner about it. That way, you won’t be surprised when those monthly bills arrive at your new home.
Buying a new home is exciting, but it’s important to be prepared for the true costs so you can plan accordingly. Estimating the cost of each of the items we’ve included here will help you avoid surprises – and sail through the purchase of your new home.
Are you ready to buy a home? Click here to learn about Addition Financial’s competitive mortgages.