The real estate market is still hot, in many areas. Homes are being purchased within days of listing. As exciting as it is to take the leap into homeownership, it’s important to have a realistic idea of the costs associated with buying a new home before you take that plunge.
A good place to start is to decide where you want to live. Much of the overall price will depend on your chosen location. This also will help you to apply for pre-approval so you can begin to formulate a budget and a plan. Some areas may have more flexible financing opportunities available, like access to first-time homebuyers programs or state taxes.
The down payment is going to depend on the type of loan you get. Historically, it has been 20%, but this varies based upon what you qualify for and whether or not your state has programs available to you to assist with the down payment.
Closing costs depend on the loan amount, the lender fees, and your interest rate, but typically can fall in the range of 3-6% of the total loan amount. You may be able to reduce your closing costs with lender credits in exchange for a higher interest rate or pay more up front in lender points for prepaid interest and reduce your interest rate.
Every situation is going to be unique, so it’s important to talk with your lender to figure out what may be best for you financially. Application fees, origination fees, underwriting fees and broker fees can all be included in the closing costs as lender fees, or be required up front. The Loan Estimate you get at pre-approval will give you an idea of what to expect, but might be a little different from the final numbers in your Closing Disclosure you get at approval.
Third Party Closing Costs
Be prepared for some additional costs from third parties. Some of these are able to be lowered by shopping around and exploring your options, some are bundled in with your lender fees, and some are set by the state or local government and thus not negotiable.
A few examples of things you might end up paying for:
- Credit reports // the cost of running your credit is usually added into your closing cost
- Home appraisals and surveys
- Title searches
- Title transfer taxes and recording fees // these vary a lot depending on where you are looking to purchase, do some research
- Notary fees // each state has a different range for these costs, talk to your lender about what yours might be
- Pest/termite inspections
- Flood determination // evaluating the risk and severity of flooding in your chosen area
- Homeowners insurance // be sure to shop around for a good deal
- Mortgage insurance // in some cases, this may be required by the lender if you are putting less than 20% down
Homeowners Association, or HOA, fees can add up quickly, depending on the neighborhood you are looking to move into. These can cover everything from pool or tennis court facilities, to landscaping, community maintenance, and security. Be sure to find out if your desired neighborhood has an HOA, and if the HOA covers any insurance for the home and property as well.
Moving Services and Supplies
Moving costs are often overlooked. You can rent a moving truck and do it yourself from start to finish, you can hire movers, or you can simply pack boxes and hire additional helping hands to assist with your move. You may even consider splurging on a deep cleaning of your new home, too. Even something as simple as a change of address with USPS currently costs $1.10 online. And you can’t forget to include the costs of updating your address on ID cards and driver’s licenses, as well as car registration.
Home Renovations, Upgrades, and Interior Designs
For fans of home renovation shows, you already know that updating the space can be as expensive as you make it: everything from knocking down a wall and taking down a rose garden of wallpaper for a minimalist, open-concept feel to adding an inground pool and a dream kitchen complete with custom cabinetry and stainless steel appliances for the luxurious home of your dreams. You could save a little here by doing some of the work yourself or by shopping smart at discount home supply stores, like Habitat for Humanity’s ReStore, but unless you are a professional, you should stay away from DIYing major plumbing and electrical work. Not only can it be a safety hazard to experiment with circuit breakers and welding copper pipes, it can also end up costing you more in the long run when it has to be repaired and redone.
Some updates might save you money in the future, like landscaping with plants that require less water and maintenance or by adding solar panels. These updates also add value and curb appeal should you decide to sell your home in the future.
Furnishing your new home after the purchase is exciting, but when you are financing you want to wait until after closing for big purchases. Also, it’s a good idea to have a savings account set aside for maintenance and emergency repairs. While a leaky faucet may only set you back a few dollars, a new water heater could be a bank breaker if you aren’t prepared for it.
A Smart Homebuyer Saves Money
Whether you’re buying a home for the first time, looking to get into real estate investing, downsizing your empty nest, or simply upgrading to a new sanctuary, it’s always important to keep in mind the unexpected costs so you can save money and avoid paying more when all is said and done. With proper planning and information, you could get your dream house at a fraction of the cost.
For your Home Loan needs in Alabama or Mississippi, reach out to Jerromy Downey @ 205-495-0313 or www.thehouseloanguy.com