When purchasing a home, most people tend to focus on the amount it costs and the interest rate they can obtain on the loan.
While it’s important to understand the lending process, don’t overlook other fees that are associated with home purchase.
Most potential homeowners understand that they require an initial investment, but are unaware of the amount of cash they need to purchase a home. Besides the obvious down payment, you must beware that homeownership requires these upfront costs.
Down payment
A down payment is the portion of the home cost that originates from your money instead of the mortgage. Most kinds of home loans need a minimum down payment of 3.5% of the buying price.
However, on conventional loans, anything below 20% down payment will imply that you’ll have to pay an extra mortgage insurance premium together with mortgage payment.
Remember, the down payment also affects how high a buying price you can afford, your monthly payments, the amount of interest you’ll pay over the mortgage course, and the mortgage insurance you’ll have to pay.
In the event that you discover the amounts are extremely high, you can increase the down payment or locate a less costly property.
Inspections
Throughout the course of processing your loan application, you’ll need to cover the bill for an appraisal and home inspections.
In most instances, you’ll only take responsibility for a basic inspection, which will reveal things such as faulty HVAC and electrical systems, the existence of mold, or foundation issues.
Other types of loans may need additional inspections, for instance the pest inspections needed for VA loans. Most inspections cost about $500 though they may be considerably less or more depending on your residential area.
Appraisal Charges
When buying a home, you need to pay for an appraisal, which involves the assessment of the property’s value by a third party. An appraisal typically costs approximately $350 on average though the cost may differ depending on your location.
An appraisal is necessary to establish your home’s current market value for tax purposes. The written justification of the cost paid for a property depends primarily on comparable sales of nearby properties. In some instances, you may need to make direct payments to the appraiser or inspector.
However, in other cases you may need to pay your lender first for the services before they make payment to the suitable parties. On average, you can expect to pay $850 for the services though it might vary depending on the market you’re in.
Homeowner’s Insurance
When borrowing money for home purchase, you must purchase insurance. In numerous cases, this implies purchasing a policy before closing on the property. This policy merges hazard and personal liability coverage to cover a home and its contents.
Ensure you read the policy carefully to comprehend your coverage. Bear in mind that the premium varies depending on the value, location, and other considerations of the property.
Taxes
First time homebuyers frequently forget that they’ll need to pay some of the property taxes upfront. As a buyer, you should expect to pay between one and six months of taxes upfront on your property.
In some cases, you might be fortunate and take advantage of the existing homeowner’s tax payments. Therefore, you might not need to pay anything upon moving in if the existing homeowner has paid them recently.
Final Thoughts
When preparing to purchase your first home, you must budget for these upfront costs, which you’ll incur in the process to avoid unnecessary surprises and inconveniences.
For more information on the upfront costs of home buying, contact us at Apartment Agents or leave a comment.