Buying a new home can be a complicated and nerve-wracking process, and this is true whether it’s your first time or your fifth. Navigating the real estate market and finding a home that you like at a price you’re comfortable with is difficult enough. Then you’ll also need to figure out exactly how much you can actually afford and what it will cost you in the end. With this in mind, here is everything you need to know about calculating the total costs that go into buying a home.
Down Payment, Mortgage, and Interest Rate
The terms of your mortgage, the interest rate and the amount you put as a down payment will all directly impact the amount you’ll end up paying over the life of your loan. Depending on the type of loan you’re using, the down payment could be as little as 3 percent or as much as 10 to 20 percent. It is usually recommended to pay as a large of a down payment as you can upfront since this will decrease the total amount of your loan and thus the amount of interest you’ll pay over the life of it. For instance, if you are buying a house for $200,000 with a 10 percent down payment, your loan will only be for $180,000. However, if you only put $10,000 down, you’d end up paying interest on $190,000 instead.
Closing costs aren’t something that most people immediately consider, but the fact is that they can quickly add up. The closing costs are essentially all of the fees associated with your mortgage, such as the application fee, credit check fee, appraisal, underwriting fees, etc. A realtor from a reputable company, such as REMAX Executive, should be able to help you figure out the exact amount, but you should usually expect to pay anywhere from 2 to 6 percent of the total loan principal in closing costs. These fees will generally need to be paid in full at signing. Some mortgage providers do allow you to add the fees onto your loan instead of paying them upfront. However, doing this will increase the loan principal and thus the amount of interest you’ll pay.
Property Taxes, Insurance, and Other Fees
Although these other fees aren’t necessarily part of the total cost of buying the home, they are still something you will need to consider. Depending on your loan, the property tax might be paid separately each year or added on to your monthly mortgage payment. If you have a conventional loan and you put down less than 20 percent as a down payment, you will also be required to pay for private mortgage insurance and this can greatly increase your monthly costs. There could also be numerous other costs you may need to pay, such as HOA fees.
Although home buying can be a scary experience, it can also be one of the smartest financial decisions you’ll ever make. In this sense, one of the keys to making the experience easier and smoother is to make sure you are prepared ahead of time and know all of the potential costs you will have to pay.