Are you buying a home in the near future? Have you started visiting real estate websites looking at different properties in various parts of town? Maybe even calculated an estimated monthly payment? Then congratulations, you’re soon on your way to becoming a home owner. Yet you’re already aware there are costs involved when buying a home while there are little to none when renting. In order to help better prepare you for your financial journey, here are some costs associated with buying a home you need to know about.
Down Payment. This isn’t a cost so much as it is a transfer of assets, but you’ll still find your bank account lightened. Most loans require a down payment of some sort so you’ll need to count those funds needed to close. There are loans that do not require a down payment, VA and USDA loans, but you will still need cash to close.
Closing Costs. Closing costs are charges associated with obtaining a mortgage loan. There are hard costs and so-called “soft” costs. Hard costs are fees for services needed by your mortgage company in order to approve and fund your home loan. An underwriting fee and an origination fee are such charges. So are escrow and title insurance fees. Soft costs are those for property tax impounds, insurance and interest charges.
Impounds. Impounds are amounts collected in order to pay for property taxes and insurance when due. Each month your lender can collect a monthly amount that is distributed when the property tax bill comes and insurance policy is due to renew. At closing, some lenders require you to set up an impound account equal to one or two months’ worth of taxes and insurance to be used as a “cushion” should taxes or premiums rise during the course of the loan. Impound accounts are typically required if your loan down payment is less than 20% of the sales price.
Taxes and Insurance. If you elect not to have impound accounts you will be expected to pay property taxes twice per year and renew your insurance policy annually when it is time for the premium to renew.
Maintenance. When you rent and something needs fixing in your apartment you call the apartment manager or landlord. Say the sink disposal is locked up and the sink doesn’t drain. You’ll just place a call and the repair person shows up. When you own and something needs fixing it’s you who has to take care of it. If you can replace a sink disposal on your own you saved some money paying a plumber. Otherwise, plan on taking care of maintenance and repairs out of your own pocket.
HOA Dues. If you live in a condo or in a neighborhood where there is a homeowner’s association fee, this is an additional cost paid annually or monthly, depending upon the requirement. The HOA fee is used to take care of common areas such as sidewalks, community center or swimming pools.
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