Buying a house seems simple enough. You pay the money and the house is yours, right? Wrong. Every single house that is for sale has a listed price tag, but there is so much more that you have to think about if you want to know the real cost of buying it. You cannot think just about the price tag. You need to be aware of all house buying costs. This includes what you pay upfront and what you will have to pay in the future. We will not talk about property improvement costs like with tree removal because this is something you are already aware of.
If you want to know all house buying costs, here they are. Always think about all of them when you make your final choice.
This is a highly predictable cost you have to analyze when a home is bought. Usually, the first-time buyer believes that mortgage payments stand out as the only payment that has to be made every single month after the purchase is finalized. Do not fall into this trap as there are many other house buying costs to be aware of.
Related Link: Mortgage Calculator
The big amount you instantly know is the down payment. This is included in home equity though so it does have real financial value for you. Closing costs are not like that. You do not recoup this money.
As a definition, closing costs are third-party and lender fees that are paid when the real estate transaction is closed. For instance, if you buy a house for $300,000, you can expect to have to pay up to $15,000 as extra closing costs.
The most common one-time closing costs are:
- Survey Fee – Verifies property lines.
- Appraisal Fee – Professional home value estimation.
- Wire Transfer Fee – How Much it costs to transfer the funds as you buy the house.
- Origination And Underwriting Fees – A charge associated with processing, verifying and evaluating a loan application.
- Discount Points – These lower mortgage interest rates and are optional.
- Document Preparation fee – How much it costs to prepare loan documents so they are processed. This fee can often be eliminated or at least negotiated.
- Recording Fee – Necessary to enter new records for the property. These are government fees.
- Title Insurance – This protects you if the owner of the house does not actually have full authority and deed for the property you want to buy.
- Credit Report Fee – Needed to pull credit scores and history.
Besides these, other closing costs may apply. You have to be aware of all to calculate all house buying costs.
The Commission Of The Real Estate Agent
These are usually around 6% and are split between the agents of the seller and the buyer. A buyer does not have to think about this commission in most cases because seller funds are responsible for covering real estate agent commissions. However, there are cases in which the seller will want the buyer to pay a part of the commissions.
Related Read: How Do Real Estate Agents Get Paid?
Property tax laws vary a lot from one country to the next and even between states. The real estate agent is the one that should tell you what to expect. A local government is allowed to raise the property taxes in order to cover municipal expenses or projects. Never assume that these are steady. Practically, just because you found out that property taxes were at a specific level last month does not mean this is what you will have to pay this month.
Property taxes also rise when the assessed value of the home is increased. This can happen due to different reasons, including overall market conditions and renovations.
Just as with property taxes, you need homeowners and hazard insurance policies. They do vary a lot. The homeowners insurance can easily go up to $1,000 per year or more. A hazard insurance policy is determined based on area risks, like earthquakes and floods. Bundle these insurance policies with your life or auto insurance policies to keep costs low.
Private Mortgage Insurance
Private mortgage insurance is necessary if the down payment is under 20% of home buying price. It adds 2% to the loan amount every single year. You get this type of insurance because the mortgage lender forces you so that it can be protected from loan default.
Most first-time buyers will need to pay private mortgage insurance. This involves monthly payments but they are usually lumped in right with loan payments. The payments are necessary until mortgage balance goes under 80% of house value. Insurance charges need to be automatically cancelled by the lender when necessary.
Related Read: What Is Private Mortgage Insurance?
Homeowners Association, Co-Op And Condo Fees
When buying a house in a planned development that has shared spaces and an association for homeowners, monthly assessments are needed besides the mortgage payments. This is needed to pay for complex improvements, like painting or landscaping. In the expensive urban areas, you also have to deal with condo assessments and there are also co-op fees that might appear. These can be as high as your mortgage payments.
Last but not least, these costs need to be mentioned as they can easily shock a house buyer. This is especially the case when you move from an apartment to a single-family home. You can easily end up having to pay around $200 every single month on utilities. This is because you need more energy to cool or heat the larger home. At the same time, you have to pick up the full bill for trash and water services.
Talk with the real estate agent so you receive an estimate of monthly utility costs before making a purchase. This is necessary to be sure that you remain within the monthly expenses budget you have.
Related Read: How To Estimate Utility Costs
As you can easily notice, buying a house and running the household is a very serious financial endeavor. You want to be sure that you are aware of all house buying costs. Always discuss this with the real estate agent.