When you go to buy a house, the amount you bid on the property is not the actual amount you will pay. It’s frustrating, really, that you get approved for a certain amount, find a home within the allotted budget, and end up having to pay extra in the end.
Most of the upfront costs are lumped into a term called the closing costs. There are also costs distributed throughout the life of the mortgage, as well as fees to pay while you own the property. While it’s nice to dream about the large purchase price being the only number you have to pay, here is a guide to the true cost of buying a house.
Closing Costs Estimate
Most real estate experts will tell you to plan on saving anywhere between 2% and 5% of the home price for closing costs. That means, if you buy a home for $250,000, you should plan on saving between $5,000 and $12,500! That’s quite a difference in cost. It’s a good idea to have the money ready to go when you plan on buying a home. If you don’t have that kind of cash just lying around, however, there are a few workarounds.
Seller Pays Closing Costs
Many realtors will negotiate for the seller to pay half or even all of the closing costs. If you are purchasing the home for more than the seller owes on it, you have pretty good odds of getting these costs covered. However, if you are getting the home for a great price, such as via short sale, expect to carry all of the costs yourself. Other instances where the seller might not be inclined to pay for closing costs include foreclosures and lowball offers.
Adding Closing Costs To Your Mortgage
There are other ways of avoiding closing costs. One of those ways is to ask for the costs to be roped into the loan. Imagine, for example, you are closing on a house for $250,000. Your lender informs you that the closing costs are $10,000. If approved, your lender could put that $10,000 on your loan. You would then be paying a mortgage on $260,000 rather than $250,000. The catch is you need to be approved for $260,000, not just $250,000. Talk to your lender about this if you are interested in taking this route.
Title insurance is roped into the closing costs and split between the buyer and seller. You can't get out of title insurance unless you buy the home with cash. Even then, however, you want to be careful. Title insurance protects the current owner of the house, as well as the lender, from legal action. This legal action could be due to heirs of the title coming forward or unresolved liens on the title. Some other fees or legal issues previously not discovered could pop up, which is why the insurance is important. In the instance that your title belongs to someone else, the title insurance compensates both the lender and the buyer for any loss.
Mortgage insurance is usually taken out on FHA loans and other loans where the down payment put on the house is less than 20%. This type of insurance protects the lender against legal implications such as the borrower defaulting on their mortgage. These insurance premiums can be anywhere between .05% and 5% of the original mortgage amount, despite the price of the home. Mortgage insurance is not paid in a lump sum upon sale. Instead, it is paid monthly the way you would pay your car insurance. So, if your original mortgage amount was $250,000 and the insurance premium is 1%, you can expect to pay $2,500 per year or about $210 per month.
No home is free from maintenance. There are always septics to pump, water heaters to replace, and walls to patch. As long as a home is lived in (and especially if it’s an investment property!), there will be maintenance. HGTV recommends setting aside between 1% and 3% of your home’s purchase price each year to have a cushion for big repairs.
Let's break it down into real numbers. Using our example mortgage of $250,000, you should set aside between $2,500 and $7,500 per year for home maintenance. Having this reserve readily available means when your roof needs repair or your carpet needs replacing, there’s no stress as to where the money is coming from.
Along with the amount acquired from purchasing the house itself, there are other fees to consider. Some of these fees are property tax, HOA dues, and monthly bills for electric, sewer, water, and garbage. The overall price of these fees vary based on your location and footprint, but they are still worth taking into consideration when purchasing a home. It is always a good idea to ask about property taxes and HOA dues before making an offer on a house. You don't want to commit to a property you really can't afford.
The Clever Advantage
Buying a home obviously isn’t cheap. Simply owning and living in a home isn’t cheap, either. Is there a way to save money on the frontend? A way that doesn’t involve getting a better sale price? We’ve created one, and it's Clever.
At Clever, we believe in providing quality service and saving our clients money. Our top local agents not only provide exceptional service—they do it at a fraction of the cost a regular agent would.
For buyers, this means you could get money back from the sale. This money is in the form of a commission rebate. Clever offers up to 1% of the sale price of the home back in your pocket, based on the number of homes you were shown and the price of the home. That means you could take home up to $2,500 on a house worth $250,000. That’s the price of one year’s worth of mortgage insurance!
If you’re interested in getting your rebate and using an agent you’ll love, Call Clever. Our customers adore the service our top-rated local agents provide, and the price can’t be beaten! Call us today at 1-833-2-CLEVER or fill out our online form to get started.