Many home buyers are interested in the actual cost involved in purchasing a home. In this post below we will discuss some common things, and not so common things you want to keep in mind when making a home purchase.
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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.
Down Payment: This isn’t a cost so much as it is a transfer of assets, but you’ll still find your savings reduced. Most loans, except for VA or USDA mortgages require a down payment of some sort so you’ll need to count those funds needed to close. Even with 100% home loans, you will need funds for inspections and closing costs.
Tax & Home Insurance Escrow: Impounds or escrows are collected at closing to pay for property taxes and insurance when due. Each month your bank or lender can collect a monthly amount that is distributed when the property tax bill comes and home insurance policy is due to renew. At closing, some mortgage companies require you to set up an impound account equal to two or three months’ worth of taxes and insurance to be used as a “cushion” should taxes or insurance rise during the course of the mortgage. Impound accounts are typically required if your loan down payment is less than 20% of the sales price. All government loans like FHA, USDA and VA require impounds.
Taxes and Insurance: If you elect not to have impound accounts you will be expected to pay property taxes once per year (generally around November) and renew your insurance policy annually when it is time for the premium to renew.
HOA Dues or CDD Fees: If you live in a townhome, condo or in a community 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, tennis court, ponds-lakes, community center or swimming pools.
Maintenance & Upkeep: When you rent and something breaks you can simply call the apartment manager or landlord. Say the refrigerator goes out, or AC stops working, you just place a call and the repair person shows up. When you own and something requires repair it’s you who has to take care of it. If you are handy and can replace some of these things, great. Otherwise, plan on taking care of maintenance and repairs out of your own pocket.
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