Owning a Home | The Costs You Don't Think About When Buying a Home
There are a lot of different costs to consider when you buy a home. Some are very obvious -- your mortgage, while others are not. Some of the costs are built into your mortgage and others are paid for separately. Here is a breakdown of the costs you don't think about when buying a home along with those you might be familiar with.
What makes up your monthly mortgage payment?
Principal - The total amount you need to finance after contributing your down payment.
Interest - The interest you have agreed to pay your lender for financing your home purchase.
Property Mortgage Insurance - The insurance you're required to have for your loan if you do not have at least 20% equity in your home. This protects the lender should you default and not be able to pay back your loan.
Property Taxes - You can either pay your property taxes annually or have it built into your monthly mortgage payment.
Home Owners Insurance
The last three are deposited into an escrow account and paid annually. However, the annual fees are broken down into monthly payments and figured into your monthly mortgage payment.
What are the costs you don't think about when buying a home?
Some of the costs you might not think about when purchasing a home are typically those that are part of your closing fees. Depending on the situation, you may be able to negotiate that the buyer and seller both contribute to the closing costs, but that is not always the case. In our case, we paid for the closing costs, but this was part of our negotiating strategy to get the house that we wanted. Other fees that is sometimes spilt between buyer and seller, but is more than likely covered by the seller, are the commissions of the real estate agents. Below are some of the things that make up closing costs.
Home Owners Association Fees (Initiation + Amenities + Dues)
Appraisal Admin Fee
Lender's Title Insurance
Owner's Title Insurance
Package Handling Fee
Real Estate Agent Commission - Often paid by seller, but not always.
Government Recording Fees + Transfer Charges
Home Owners Insurance Premium
Unfortunately, I can't give you an exact break down of what all of these fees will be for you when you buy a home because there are no set values. Each state will have different tax rates, attorneys will have different fee breakdowns, and every HOA is different. The good news is that your lender is required to give you a loan estimate which includes an estimate of closing costs with in so many days of closing. To be safe, you should anticipate needing an additional 6% of your total loan amount to cover closing costs. This 6% is in addition to your down payment. In some cases closing cost can be built into your loan, but you will end up paying more in interest over the life of your loan and it's not always an option so you should plan on paying for these expenses up front.
Have you ever purchased a home? Were there fees that you didn't expect to have to pay? Did you find this breakdown helpful? Let me know if the comments below.