There are a lot of variables and costs that are associated with purchasing a home, this article goes over some of the costs that tend to elude first-time home buyers.
Buying a home can be one of the most expensive transactions in a person’s adult life and it is because of that expensiveness that a person needs to be diligent in their research and be sure to set proper expectations before making a purchasing decision. The expectations that should be set heavily revolve around the costs that are hidden within and outside the mortgage. A mistake that some first-time home buyers will make is looking at these fees associated with a home purchase as “extras” and can quickly become overwhelmed by the expensiveness of those costs.
It may be tempting when you encounter a favorable mortgage to think “Fantastic, I can now afford my dream home!” This sentiment may ring true, however, it is always safe to factor in some of the costs that lay beyond the mortgage. Luckily, the purpose of this article is to briefly go over the costs that will be waiting for home buyers during the process of purchase. However, the process of buying a home is a complicated one and will vary depending on the location you live in, so always be sure to find a skilled and trustworthy real estate agency to help guide you through these costs if you find yourself overwhelmed by one of the most important transactions an adult will make.
A great place to start when shopping for a new home is to determine the market conditions for your area. Although there are plenty of costs and fees waiting throughout the process of buying a home, figuring out how expensive homes are–and what you can afford is always a great place to start. This stage of the buying process can also be confusing and overwhelming and finding a trusted real estate agent to help guide you through the prices of properties is always a good idea.
With the first step of the process out of the way, the next thing to be done is to try to identify the costs that will be waiting for you through the process of buying your home. A good way to itemize these costs is to look at them from two separate categories–upfront and ongoing costs.
Up Front Costs:
The “up front” costs are those that are more easily anticipated as they are attached directly to the purchase of the home. Although they are more easily anticipated, it is easy for first-time homebuyers to underestimate the expense of these costs. Here are a few of the upfront costs you should be expecting to tackle when going to buy a home:
Mortgage Fees: This may startle some but it costs money to borrow money and the expenses associated with acquiring a mortgage are often overlooked. When buying a home you will be responsible for the expenses of the services to secure that loan.
Down Payment: This expense usually will be the largest upfront cost that a home buyer will encounter. Although some loans do not require the buyer to make a down payment, most loans will require at least 3% of the mortgage to put down. To alleviate some of the sting of that cost, paying at least 20% as a down payment will cut one of the other costs: private mortgage insurance (PMI)
Application Fees: Certain lenders will charge a fee to start an application
Credit Check Fees: A nominal fee will usually be charged to make sure that a buyer’s credit is in order.
Appraisal Fees: A critical part of the home buying process is to have that property professionally appraised. This gives a lender assurance that the property’s value does not exceed the loan being given out.
Home Inspection: In some parts of the U.S. this part of the costs is optional but it cannot be stressed enough that opting for a thorough home inspection process could save a home buyer a plethora of trouble or money!
Origination/Underwriter Fees: An administrative fee for the lender to generate and process the loan. These fees typically start at around 0.5% of the loan amount.
Title Insurance: This insurance protects the lender in the case that problems arise with the borrower’s ownership of the property after the sale has gone through. This fee also typically starts at 0.5% of the loan amount
Title Search: For the purchase of anything other than a new-build home, a title search company will be needed to consult with property records to ensure there are no encumbrances associated with the property–such as a lien on the home’s title.
Title Transfer: This fee is associated with the act of transferring ownership of the title from the seller to the buyer and this cost can vary by location.
Now if these costs are making your savings account squeamish, keep in mind that there is a possible option of a “no-closing costs mortgage”. This option is offered by most lenders and it adds the closing costs to the principal of the loan or will be paid in the form of higher interest rates on the loan. This option can save you from having to have cash to pay upfront but can cost you much more in the long run; especially if you plan on staying in the home for the long run.
Ongoing Costs:
These costs are the costs that will live on past the purchase of your home and will likely be a monthly expense that will have to be taken into consideration for the long haul. Some of these costs will include:
Mortgage Payment: This expense should come as a no-brainer, however, this will most likely be the largest monthly expense you should expect to have. It helps to start with the price of your monthly mortgage payment and then build your budget around it when buying a home.
Property Tax: Almost everywhere, the city or county will expect you to pay taxes on your home for as long as you own it. Normally, these property taxes are attached to your monthly mortgage payment but are separate from the interest rate and principal of the loan,
Homeowners Insurance: This type of insurance protects the homeowner from unexpected events that damage the property. Although homeowners insurance isn’t required by law, most mortgage lenders will require the buyer to have it. The prices of this insurance will vary greatly and contains a seemingly endless amount of options, so be sure to compare offers to find the right option for you.
Private Mortgage Insurance: This insurance is typically attached to conventional loans that protect the lender if you were to default on the loan. This type of loan can drastically increase the monthly mortgage payment.
HOA Fees: These fees are associated with living in neighborhoods overseen by a homeowner’s association. These fees can vary drastically in price as the association is the one who determines that fee. These fees usually fund services for the community such as–security, gym, or pool being available for the community.
Upkeep: This expense should be expected when going to purchase a home but the expenses can vary greatly as the problems encountered will be dependent on the home. It has been recommended to expect about 1% of the home’s value to be spent yearly on the maintenance of the property.
Utilities: This expense should also be expected but depending on the living situation you are coming from, the list of utilities expected to be paid for could be more extensive so be sure to do your research!
This article only brushed past all the expenses that could be hiding along the process of purchasing your home, so remember to do diligent research, budget conservatively, and most of all–do not be afraid to outsource if feeling overwhelmed as there are countless qualified and eager real estate agents in the city of Tucson!
