Are you aware of the costs and fees during the homebuying process and beyond? You need to be in order to properly save and budget for both the transaction and a home. Don’t dive into a mortgage journey unprepared. Read on to learn about all the costs of buying and owning a home.
Upfront Costs
These are one-time costs that you pay during the homebuying process. Many borrowers take the time to save for these costs, especially the down payment, so make sure you understand how much money you may need to account for as you buy a home.
Down Payment
Perhaps one of the most well-known and dreaded costs to buying a home, a down payment is the money you pay upfront for the property. How much you put down is dependent on your savings and the kind of loan you get, and there are even some loans in which you don’t have to put any money down if you’re eligible for them.
The more money you put down, the less you’ll borrow, possibly meaning a lower monthly mortgage payment. To determine the minimum amount for your down payment, double check with your lender.
Closing Costs
These fees are due at your closing (hence “closing” costs) and can vary between transactions. They are separate from the property’s price and need to be paid in order to complete your transaction. Closing costs can include:
- Application Fee
- Appraisal Fee
- Home Inspection
- Origination Fee
- Underwriting Fee
- Private Mortgage Insurance (PMI)
- Homeowners Insurance
- Title Fees
- Discount Points
- Property Taxes
- And More
Discuss these fees with your lender to get a full understanding of your closing costs.
Real Estate Agent Fees
If you’re working with a real estate agent, you may need to pay their commission. Typical agent fees vary a bit depending on the property price and the location you’re buying in, but according to Clever®, the average commission in the United States in 2024 is about 5.49 percent which is divided between the buyer’s agent and listing agent. Discuss these rates with your agent as you may also be able to negotiate.
Savings
Your lender may require you to prove that you have additional money saved to make sure you’re not depleting all your savings. Called “reserves”, these savings help ensure you have enough to make your monthly mortgage payments.
Moving Expenses
Outside of the transaction itself, you should account for any moving expenses for when you’re actually ready to get into your new home. These could include hiring professional movers, moving insurance, renting a moving truck, buying packing supplies or renting a storage unit for items you may not have room for. If you’re moving out of state or across the country, you may want to take any travel expenses into consideration as well.
Ongoing Costs
You’ll likely want to think about your ongoing costs after your purchase is complete too. Understanding these will help you budget for other necessities outside of your home.
Monthly Mortgage Payments
These payments are to pay back what you owe on your loan. This may likely be your most expensive recurring cost so you may want to start with this number when you’re planning your budget.
Private Mortgage Insurance
If you have a conventional loan and put less than 20 percent down on your home, it’s likely you’ll need to pay PMI. This is a cost that protects lenders in case the borrower defaults on their loan. However, you may be able to get rid of PMI once you have enough equity in your home.
Property Taxes
These expenses are charged by your local government and are typically used to fund services that benefit your community. This tax is based on your property’s value and can vary a lot between cities throughout the United States.
Homeowners and Flood Insurance
Homeowners and flood insurance policies help protect against damage from natural disasters, vandalism or theft. This cost can vary between policies and areas, so it can be beneficial to shop around first to help keep these expenses to a minimum.
Home Maintenance or Improvements
As a homeowner, you have a responsibility to take care of your home, and this can become a recurring cost for as long as you live in the home. Maintenance tasks can include repairs, the upkeep of utilities, replacing systems and more. You may even want or have to do other big home renovations depending on the property, which can be a significant cost.
Homeowners Association (HOA) Fees
If you live in a home in a community that has an HOA, you may also need to pay a homeowners association fee. These costs are determined by the HOA and go towards services that are provided within the community. They can include a pool, gym, security, landscaping and more.
Are Your Finances Ready?
Buying a home is an investment. Preparing your finances for it is imperative and taking proactive steps to take on the responsibility of becoming a homeowner could help you minimize any financial woes in the future. As you’re saving and budgeting, make sure you choose a trustworthy and transparent lender who will answer all your questions and lay out all your options.
This article is intended for general informational and educational purposes only and should not be construed as financial or tax advice. For more information on financial planning or investment advice, consult a registered investment advisor or financial planner.
This information is intended for educational purposes only. Products and interest rates subject to change without notice. Loan products are subject to credit approval and include terms and conditions, fees and other costs. Terms and conditions may apply. Property insurance is required on all loans secured by property. VA loan products are subject to VA eligibility requirements. Adjustable Rate Mortgage (ARM) interest rates and monthly payment are subject to adjustment. Upon submission of a full application, a mortgage banker will review and provide you with the terms, conditions, disclosures, and additional details on the interest rates that apply to your individual situation.
