In the home buying process, homeowners are paying for the dream home, plus supplementary costs. The unfortunate reality is homeowners must continue to pay for the home long after closing – including upkeep and repairs. Make room in the budget for these financial game changers.
Generally, closing costs are 2% to 5% of the agreed home purchase price. If a home costs $100,000, expect to pay the $100,000 plus an amount between $2,000 and $5,000 in closing costs. Exact numbers depend on state law. Total closing costs are lender fees, escrow fees, attorney fees, property transfer taxes, appraisal costs, and interest combined.
A requirement for mortgage lenders and a recommendation for cash buyers, the home inspection is the thorough inspection to prove to buyers that the home meets city and state standards. If the home does not, buyers can reject the home or demand. General home inspections are a requirement, but sewer, termite, and surveyor inspections exist as well. This is a few hundred bucks worth its weight.
A second requirement for mortgage lenders and a second recommendation for cash buyers, home insurance cover structural damage and belongings done to the house. The liability covers damages family members and pets cause to others. Cost of home insurance payments depends on insurance provider and home location. Sold separately are riders such as flood insurance, earthquake insurance, and jewelry coverage.
Mortgage Insurance and Interest
Failure to pay a 20% down payment upfront means buyers will pay private mortgage insurance on top of everything mentioned so far. The amount depends on credit score and down payment offered. Conversely, mortgage interest is a 3% to 5% annual rate weighing heavily on the down payment, mortgage duration, credit score, debt, and income.
Last, homeowners must pay property taxes to the city and/or state. Beginning with the year of purchase, homeowners pay property taxes once a year, usually around tax season. The amount paid is a percentage affected by location and property value.
It might not seem like much, but those charges raise the price of the home. If people aren’t ready to purchase a home, don’t rush into this haphazardly. Get financially prepared before venturing into homeownership. After all, homeownership is a commitment, and remaining in a stable and comforting environment is expensive.