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Most potential homebuyers know they need to save enough to pay a down payment, but they may not realize that they need even more cash to go through the home buying process, set up their new home, and keep up with potential repairs.
Here is an overview of the costs to prepare for before and after buying a home.
1. Down payment
A down payment can determine whether or not you can afford a home, affect your interest rate, and affect your monthly payments. The traditional one Down payment target is 20%, but there are many mortgage loans that require less.
For example there is Loan programs such as Fannie Mae HomeReady, Fannie Maes Standard LTV (97% Loan-to-Value) options, Freddie Mac HomeOne, and Freddie Mac Home Possible, which only require 3% less and are government supported Federal Housing Administration (FHA) loans are available for only 3.5% less. There is also more than 2,500 down Payment assistance programs This can be useful, especially if you are a first time buyer.
Even without a dedicated mortgage program, lenders often accept a down payment of less than 20%. In 2019, the median down payment for all homebuyers was 12%, according to NAR research. When the numbers were broken down further, it was 16% for repeat buyers and 6% for first-time buyers.
However, if your down payment is less than 20%, you must include personal mortgage insurance (PMI) funds in your monthly payment. The cost of PMI varies and is typically between 0.50% and more than 2% of the total loan amount.
2. Inspection and evaluation
A Home inspectionThis is usually paid for by the buyer as it gives the buyer an expert opinion on what repairs might need to be done. The cost of a home inspection is typically anywhere from $ 300 to $ 500. The results of the inspection often lead to another round of negotiations between you and the seller about what repairs should be done before the house is closed and who will pay the costs.
Buyers who apply for a mortgage pay for that too ratingwhich costs several hundred dollars. The appraisal is different from the inspection because the appraiser performs a home value analysis on behalf of the lender to ensure that the market value of the home is at least equal to the negotiated purchase price. Determining the total cost of the loan for you is an integral part of the underwriting process for a mortgage lender.
Some assessments include inspections, such as those for FHA loans, but the FHA also encourages buyers to conduct a separate home inspection.
3. Closing costs
You should expect to pay between 2% and 5% of your purchase price Closing coststhat are settled on the day your property is closed. They can include a variety of fees, such as: B. Title costs, accrual points, attorney fees, and subscription fees. Closing costs could also include valuation if you haven’t paid for it in advance. You may also need to prepay your home insurance premium and, if necessary, mortgage insurance.
If a lender allows you to include some closing costs in the loan instead of paying upfront when you close it, it could initially improve your financial situation, but your loan – and, as a result, your monthly payments and the total interest cost – will be higher.
4. Ongoing costs
Depending on where you’re moving from – an apartment, a childhood home, or a house you’ve previously owned or rented – some of the ongoing costs associated with a home can be surprising, including:
- Utility bills: Bills for the removal of electricity, gas, water and garbage will be received every month or every quarter, which eases the burden on your budget. Assume at least a few hundred dollars a month in the cost of a 2,000 square foot home. Larger homes that require additional electricity and heating, ventilation, and air conditioning (HVAC), especially during extremely cold or hot times of the year, are likely to have higher utility bills.
- Homeowners Association (HOA) fees: If you move to a planned community, e.g. For example, in a condominium, townhouse neighborhood, or association of single-family homes, you may have to pay a few hundred dollars or more per month for it HOA fees.
- Transportation costs: If you’re moving from an urban area where you have relied on public transportation to a suburban area with fewer transit connections, you may need to buy or add a car to help your family get to work, school, and recreation / entertainment facilitate.
Unless you plan on relying on hand-me-downs or using your furniture from your previous home, budget for new furniture. You may also want to replace that awkward refrigerator or laundry kit that you inherited from the previous homeowner.
Because of this, people who buy a newly built home spend an average of at least $ 4,500 more than a similar immovable homeowner in the two years after the home closes study performed for the National Association of Home Builders. Those moving into an existing home spent an average of $ 4,000 more than a non-moving homeowner.
If you’re looking to furnish your home with the help of a designer, it will likely cost around $ 14,000 on the low end and more than $ 100,000 on the luxury budget, adding thousands to your initial housing costs. And that’s just the facility. You should also consider replacing appliances, especially if you’re renovating your kitchen or bathroom, changing linen sets, and buying smaller appliances.
Unless you plan on working with a designer, prioritizing your most important furniture, estimating the cost, and setting aside as much as possible for those items.
6. Repairs and renovations
You may be drawn to a cheap home in an ideal neighborhood and quickly find out why it’s so affordable – an old stove, a leaky roof, or an unfinished basement. All of these projects – whether it’s replacing an HVAC unit or remodeling a basement – could cost several thousand dollars. In 2019, the average home renovation spend was $ 13,000, according to the U.S. Houzz & Home 2020 Study: Home Renovation Trends.
If you haven’t saved enough money to make these important purchases soon after you move in, there are a few options:
- Redirect your deposit. If lowering your down payment by several thousand dollars doesn’t affect your interest rate and / or increase your monthly payments dramatically, consider using that money to buy a new stove or air conditioner to avoid the possibility of outage if it fails least comfortable.
- Continue funding. HVAC dealers / installers and others often have financing plans that allow you to pay the cost over a period of time, possibly with very low interest rates. Even if you can get one Home equity loan or line of creditThis could be an easy way to pay for a remodel and potentially get a tax break on the interest.
- Just wait. You can try to save as you go, hoping the roof will hold out another year, and then pay for it when you can.
It is important for potential homeowners to save for a variety of needs, not just the down payment. When you finally own the home of your dreams, you want it to reflect your style ASAP without going into extreme debt.