When you’re planning a home purchase, it’s essential to be aware of the costs you will encounter throughout the process. Most first-time homebuyers only plan for the down payment, but there are a variety of costs you may encounter during your home purchase. Below, we’ll outline a variety of costs you may face so you can feel confident before signing the dotted line.
The down payment, or the amount of money you pay upfront toward your mortgage, is the payment people typically think of when buying a house. Down payment requirements depend on the mortgage loan program. Traditionally, a 20% down payment is recommended for those that can afford it so the buyer can avoid buying private mortgage insurance.
Closing costs are lender and third-party fees that are paid at the close of a real estate transaction. These costs are typically between 2% and 5% of the total loan cost.
The appraisal fee covers the cost of the official appraisal report on your home’s worth. Mortgage lenders require appraisals to ensure that the house is worth the amount of money they’re lending.
Also known as a “good faith deposit”, earnest money is the money you pay immediately after the seller accepts the offer and you sign the contract. The earnest money is typically between 1% and 3% of the listing price and is used to show the seller that you’re serious about purchasing the home. The money is held in an escrow account until the deal is complete. If there are any contingencies surrounding the purchase agreement, the buyer gets their earnest money back.
Title insurance protects you and your mortgage lender if any potential issues arise over the ownership of the property. It’s a one-time payment and covers certain legal costs of a title dispute.
This fee covers your mortgage lender for the cost of processing your loan. The origination fee is a small percentage of the total loan, typically about 1%.
Inspections, while optional, provide important information regarding potential risks and problems related to your property.
Along with your monthly mortgage payment, there are other ongoing costs to remember after you purchase a home, such as utilities and maintenance. Speak openly with your Loan Originator about your financial concerns and payment expectations.
Property taxes are paid by property owners to help cover costs for services in your community, such as public schools, emergency services, and road maintenance. The place you live will affect how you pay these taxes. Some property owners in certain areas may get quarterly bills or monthly payments.
Home insurance protects you financially from unexpected events that damage your home and property, such as water damage or vandalism, and protect you from property liabilities.
If you pay less than 20% on your down payment, mortgage insurance protects your mortgage lender against losses if you default on your loan. However, this insurance can be cancelled on conventional loans when you reach 20% in equity. FHA loans written on or after June 3, 2013 will have mortgage insurance for the life of the loan.
To qualify for a mortgage, you will need a certain amount of money set aside in your savings and investment accounts. The lender wants to see cash reserves as an extra confirmation that you can and will pay your mortgage payments on time.
If you’ve just purchased a home, you may slip on saving for your emergency fund. An emergency medical expense or an unexpected major repair on your new home could compromise your savings. Make sure you still have savings!
Now that we’ve explored expected home expenses, we hope you feel confident in knowing exactly what you’re paying. Our experienced and knowledgeable Loan Originators will happily walk you through every aspect of the process and answer any questions you have. Contact us today to get started with your home purchase journey.
Homestead Funding offers exceptional customer service and a convenient mortgage process. Whatever your financing needs, our goal is to exceed your expectations.