The total cost of a home includes various expenses beyond just the purchase price. As a buyer, it is important to know the total cost of the purchase before you start looking at homes to buy because it will save you a lot of stress when making an offer on the home of your dreams.
Here's a breakdown of the key components:
- Purchase Price:
- This is the agreed-upon price between the buyer and the seller for the home.
- Down Payment:
- The down payment is a percentage of the purchase price that the buyer pays upfront. It typically ranges from 3% to 20% or more, depending on the type of mortgage and the lender's requirements. Veterans can get a VA loan that is 0% down, however the buyer is responsible for closing costs and that can be around 3% for the purchase price, ask your agent to see if you can get your closing costs paid by the seller.
- Closing Costs:
- Closing costs encompass various fees associated with finalizing the real estate transaction. They may include fees for the loan application, appraisal, title search, title insurance, attorney fees, and other miscellaneous costs. Closing costs typically range around 3% of the home's purchase price. Buyers should request a cost breakdown sheet from the lender to get an estimate of the closing costs at different price points.
- Home Inspection and Appraisal Fees:
- The buyer may need to pay for a home inspection to assess the condition of the property and an appraisal to determine if there are any potential problems with the home.
- Inspections can be structural, mechanical, electrical, plumbing, lead, radon, septic, and environmental, they range in between $400-$900 depending on the size of the home and the types of inspections the buyers are getting done to the house.
- Appraisals usually cost around $550 - $650, however, sometimes your lender will pay for the appraisal fee, buyers should ask the lender if the appraisal is lender-paid or buyer-paid.
- Mortgage Origination Fees:
- Some lenders charge fees for processing the mortgage loan, known as origination fees. These fees are typically expressed as a percentage of the loan amount. Buyers should request an APR from the lender to get an apples-to-apples comparison when comparing two different lenders.
- Private Mortgage Insurance (PMI) or Mortgage Insurance Premium (MIP):
- If the down payment is less than 20%, the buyer may need to pay for private mortgage insurance (PMI) or mortgage insurance premium (MIP), which protects the lender in case of default.
- Your lender should be able to provide a breakdown of the costs when requested before making an offer on the house the buyer is interested in purchasing.
- Property Taxes:
- Property taxes vary based on the location and assessed value of the property. They are usually paid annually but most lenders will include the cost in monthly mortgage payments.
- Homeowners Insurance:
- Buyers must have homeowners insurance to protect against damage or loss to the property. Insurance costs can vary based on location, coverage, and the property's features.
- Homeowners Association (HOA) Fees:
- If the property is part of an HOA, the buyer will need to pay regular dues to cover maintenance and amenities.
- Utilities and Maintenance:
- Monthly utility costs and ongoing maintenance expenses are part of the overall cost of homeownership.
It's important for buyers to carefully review all potential costs associated with purchasing a home and factor them into their budget. Working with a mortgage professional and a real estate agent can provide valuable guidance in accurately understanding and estimating these costs. Keep in mind that the total cost of homeownership extends beyond the initial purchase and includes ongoing expenses associated with maintaining and living in the home.
