You’ve saved and planned and you are finally ready to buy your first home or move up to a larger one. It’s fairly easy to figure out how large a mortgage you can fit into your budget. Your real estate agent has tables and formulas that can determine the percentage of your income that’s reasonable for a home. However, be aware of the numerous other costs that must be considered, both for the home purchase and for the monthly payment.
Loan Origination Fee
This is the fee paid to your lender for the work involved with making the loan. It can be a large expense, depending on the lender and the size of your mortgage. Figure it will be between a half and one percent of the total mortgage. The loan origination fee must be paid to the lender up front, so budget accordingly.
Your first big expense after your offer on the home is accepted will be inspections, but it will be money well spent for you to find any major problems with the property before concluding the sale. Your agent will help you hire an inspector whose report will include structural components, interior plumbing and electrical systems, foundation, air conditioning and heating, roof, basement, attic and insulation, ceilings, walls, floors, doors and windows. You may want (and in some loan scenarios be required) to get a separate termite inspection. Depending on the age of the home, you also may need a sewer inspection or hydrostatic test.
In some states, if an inspection was conducted by a buyer who then backed out of the purchase, you may be able to skip paying for another by using the previous buyer’s report, if available. All the inspections will add hundreds of dollars to your home-buying budget.
Insurance and Taxes
You will be paying homeowner’s, or hazard insurance for your property, which will also be required by your lender. You can figure your mortgage payment with a mortgage calculator, but it might not include taxes and insurance costs. You may also need flood and/or natural disaster coverage depending on where your home is located. Insurance and property taxes can be paid into an escrow account with your lender who will make those payments for you. That escrow account will actually be required by your lender if putting down less than 20% for your down payment. Exceptions will be when obtaining a second lien. Remember, both insurance and taxes will go up through the years of your loan payment, so be aware of the growing total you will have to pay in addition to your mortgage.
Typically, home buyers will pay between 2 to 5 percent of the purchase price of their home in closing fees. So for a house costing $150,000, the fees will be between $3,000 and $7,500. You will receive a loan estimate from the lender. There might be some negotiations in these fees. Ask your real estate agent to help walk you through all the items on the closing cost list. Feel free to shop around for another lender if you want to look for a better deal. Also, you can request that the seller incur some of this cost.
Don’t let these additional costs surprise you. Ask lots of questions to your agent and lender to be prepared for the price you’ll really pay. Factor in these expenses, and you should be on track with a budget that will allow you to enjoy your new home for years to come.
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