Home Buying Costs
Six Home Buying Costs Beyond the Actual House
If that house you love seems a bit pricey, remember that there are other things you'll have to spring for as a homeowner besides just mortgage payments. In fact, when you buy a house, you'll have to pay for:
1. Closing costs
You don't just get approved for a mortgage, get the money you need to buy your new home, and call it a day. Instead, you have to seal the deal with closing costs.
This charge makes up all of the expenses that are needed to process your loan -- like appraisals, searches, and, of course, taxes! How much you have to pay in closing costs will depend on your specific lender. However, count on them costing anywhere from 3% to 6% of the amount of your loan.
Here's the catch -- closing costs have to be paid right away. In some cases, you might be able to roll them into the rest of your loan. However, to do that, you'll wind up with a bigger loan and probably higher mortgage rates -- meaning you'll pay more in the end.
If you don't have a few thousand dollars to spend on closing costs, see if the seller will pay all or part of them for you.
2. Points
A fancy word for fees, "points" are tacked onto a majority of mortgages.
How much is a point worth?
Each one is equal to 1% of your total loan amount. So, if you had a $100,000 mortgage with one point, you'd have to pay $1,000. Unfortunately, points have to be paid upfront, so budget carefully when it comes to the amount of points you agree to!
There are loan options out there that don't come with any points. However, you'll have to pay a higher rate for the life of your loan as a result.
3. Title insurance
It may sound like something out of a twisted nightmare, but there are times when people buy houses from someone who doesn't legally own it! If this very rare scenario happens to you, title insurance will make sure you don't get left high and dry.
But just like any other insurance policy, you'll have to pay for your peace of mind. And, when it comes to title insurance, you don't have much of a choice. That's because virtually all lenders will require you to buy it.
The amount you have to pay depends on how much your home is worth. You might have to spend a few hundred dollars, or your title insurance might cost a few thousand dollars. Think of it like car insurance -- the more expensive your car is, the more you have to pay to insure it.
4. Homeowners' insurance
Like title insurance, you don't have a choice; your lender will require you to buy a homeowner's insurance policy. In fact, some loans require you to send the money for your premiums directly to the lender. Then, they pay your premiums when the payments are due. That way, they can make sure your premiums are up to date, just in case the worst happens.
5. Private mortgage insurance
If you get an FHA loan, you'll be required to buy this type of insurance. If you get a traditional loan, you can skip the private mortgage insurance if you put down a bigger down payment (typically, you have to put down 20% to skip it).
Your exact cost will vary, but count on paying somewhere around $100 each month for the life of your loan. And, sadly, some lenders will make you pay for the entire first year when you close!
6. Property taxes
If you enjoy things like police and fire protection, local schools, and roads that don't have potholes in them, you can thank property tax revenues for them. As soon as you buy a home, you'll be responsible for property taxes, too.
Like homeowner's insurance, your lender may add this charge onto your mortgage payment every month. That way, they won't have to worry about skipping your tax payment and buying something else instead!
If that house you love seems a bit pricey, remember that there are other things you'll have to spring for as a homeowner besides just mortgage payments. In fact, when you buy a house, you'll have to pay for:
1. Closing costs
You don't just get approved for a mortgage, get the money you need to buy your new home, and call it a day. Instead, you have to seal the deal with closing costs.
This charge makes up all of the expenses that are needed to process your loan -- like appraisals, searches, and, of course, taxes! How much you have to pay in closing costs will depend on your specific lender. However, count on them costing anywhere from 3% to 6% of the amount of your loan.
Here's the catch -- closing costs have to be paid right away. In some cases, you might be able to roll them into the rest of your loan. However, to do that, you'll wind up with a bigger loan and probably higher mortgage rates -- meaning you'll pay more in the end.
If you don't have a few thousand dollars to spend on closing costs, see if the seller will pay all or part of them for you.
2. Points
A fancy word for fees, "points" are tacked onto a majority of mortgages.
How much is a point worth?
Each one is equal to 1% of your total loan amount. So, if you had a $100,000 mortgage with one point, you'd have to pay $1,000. Unfortunately, points have to be paid upfront, so budget carefully when it comes to the amount of points you agree to!
There are loan options out there that don't come with any points. However, you'll have to pay a higher rate for the life of your loan as a result.
3. Title insurance
It may sound like something out of a twisted nightmare, but there are times when people buy houses from someone who doesn't legally own it! If this very rare scenario happens to you, title insurance will make sure you don't get left high and dry.
But just like any other insurance policy, you'll have to pay for your peace of mind. And, when it comes to title insurance, you don't have much of a choice. That's because virtually all lenders will require you to buy it.
The amount you have to pay depends on how much your home is worth. You might have to spend a few hundred dollars, or your title insurance might cost a few thousand dollars. Think of it like car insurance -- the more expensive your car is, the more you have to pay to insure it.
4. Homeowners' insurance
Like title insurance, you don't have a choice; your lender will require you to buy a homeowner's insurance policy. In fact, some loans require you to send the money for your premiums directly to the lender. Then, they pay your premiums when the payments are due. That way, they can make sure your premiums are up to date, just in case the worst happens.
5. Private mortgage insurance
If you get an FHA loan, you'll be required to buy this type of insurance. If you get a traditional loan, you can skip the private mortgage insurance if you put down a bigger down payment (typically, you have to put down 20% to skip it).
Your exact cost will vary, but count on paying somewhere around $100 each month for the life of your loan. And, sadly, some lenders will make you pay for the entire first year when you close!
6. Property taxes
If you enjoy things like police and fire protection, local schools, and roads that don't have potholes in them, you can thank property tax revenues for them. As soon as you buy a home, you'll be responsible for property taxes, too.
Like homeowner's insurance, your lender may add this charge onto your mortgage payment every month. That way, they won't have to worry about skipping your tax payment and buying something else instead!
