Although it’s a tough market to break into, real estate remains a reliable and rewarding investment for most ordinary people. If you want to buy a home, you may not be far off from fulfilling your dream. You simply need to plan your finances mindfully.
Buying a house isn’t easy, though, especially for people with a middle-class income. You’ll need a strong resolve and patience to create a good credit score and save money. Depending on where you live, you’ll have many costs to cover as a homeowner.
One thing’s for sure: the actual home cost won’t be your only expense. There are many other costs you may not even be aware of. If you’re looking to buy a house, here’s a guide on every cost you might encounter:
What Do You Need to Buy A Home?
Firstly, it’s essential to talk about the things you’ll need to buy a home. As a potential homeowner, you must understand what goes into the process before getting into individual costs. This step will also tell you how to become a stronger applicant.
Good Financial Health
Of course, having good financial health is a crucial part of buying a house. You can’t become a homeowner without a comfortable financial situation. Many homeowners save for years before investing in a real estate property.
In most countries, banks and lenders look at savings as collateral. However, good financial health doesn’t just involve having money in the bank.
You must demonstrate good credit, which involves paying bills promptly, not incurring any debts, and having responsible spending habits.
Professional Assistance
Next, most people can’t navigate the real estate world without professional assistance. You may need to contact all sorts of people, ranging from real estate lawyers to insurance agents. However, you absolutely can’t do without a reliable real estate agent and mortgage lender.
Real Estate Agents
Hiring a real estate agent is a necessity. Although you may find listings by yourself, you can’t visit them without a real estate agent mediating the process. Real estate agents help you through each aspect of the buying process.
From finding potential homes in your price range to processing paperwork, real estate agents are assets. Moreover, they usually work on commission, taking their fees from the home’s down payment.
Mortgage Lenders
Most people can’t afford the entire down payment and/or mortgage upfront. As such, they visit mortgage lenders (who can be either direct lenders or brokers) for a loan. Mortgage lenders aren’t loan sharks. Rather, they’re licensed workers who give financial advice and bank loans.
However, you should always review a mortgage lender’s terms and conditions before agreeing. Ensure that their fees, interest rates, and other requirements are acceptable.
Mortgage Pre-Approval
You can’t finalize your homeownership without a mortgage pre-approval. As such, mortgage lenders are very important. You can either ask a mortgage lender or bank to pre-approve your mortgage.
Why is pre-approval important? Well, it shows the seller you’re a serious candidate with adequate means to buy the home.
What Are the Major Costs of Buying a Home?
Now, you know what you’ll need when buying a home. As such, you can infer the types of costs involved. However, the most important costs are the upfront payments:
Down Payments
You’ve probably heard the term ‘down payment’ before. However, do you know what it means? It’s the largest cost homeowners must encounter in the initial purchase, requiring many to ask for bank loans.
In the US, average-sized homes can cost anywhere from $150,000 to $500,000, depending on the area, economic indicators (such as market demand), home size, and home age. If you buy a $150,000 house, you don’t have to pay the entire amount upfront.
Instead, you have to pay a reasonable down payment, which establishes your stake as the home’s owner. Usually, the down payment is between 3% and 3.5% of the total amount. As such, for a $150,000 home, the down payment would range from $4,500 to $5,250.
Mortgage
As mentioned, the mortgage is an essential cost, but how does it work? Unlike your down payment (which is a one-time cost), your mortgage is a monthly payment towards your bank or lender loan.
Usually, buyers borrow money from banks or lenders to complete their home purchases. Then, they pay off this money with monthly mortgages. When you’re buying a house, you’ll have to pay your down payment and first mortgage upfront.
The mortgage amount differs from case to case. It depends on how much your home cost, interest rates, tax rates, and insurance coverage.
Calculating mortgage payments involves considering factors such as interest rates, loan amount, and loan term. The mortgage amount differs from case to case
Closing Costs
Buying a house also involves closing costs, which include a series of fees. You’ll need to account for these fees to finalize your purchase. For instance, closing costs include the title fees, which help transfer the property title to your name.
If you’re using a mortgage lender, you’ll probably have to pay title insurance. The insurance money protects the lender from financial loss in case there are issues with your claim to the property title.
Other closing costs include application fees, appraisal fees, and credit check fees. These are all one-time payments.
What Are the Minor Costs of Buying a Home?
Although you’ll find the major costs quite obvious, you may overlook some of the minor costs. Such oversights can cause problems later. Therefore, you must consider these costs when planning your budget:
Moving Costs
If you’re buying a house, you’re most likely planning to move in. As such, you should factor in moving costs when planning your expenses. Moving into a home is different from purchasing one. You must ensure the house is properly inspected.
If there are any repairs or upgrades needed, you must consider those costs as well. Additionally, you have to hire a moving company. After all, no matter how frugal you may be, you can’t carry all your belongings yourself.
All in all, moving costs can go up to thousands of dollars. You should carefully assess your moving needs and create a budget.
Miscellaneous Ongoing Costs
Once you’re officially a homeowner, you’re going to deal with many ongoing costs. From home insurance to property taxes, homeownership comes with a lot of responsibility. However, the most prominent ongoing costs are maintenance costs.
If your water valve isn’t working, you can’t just call your landlord. Since you’re the owner, it’s your job to fix issues as they come up. Other than that, you have to prevent issues from arising by conducting regular maintenance jobs.
For example, some homes have in-built HVAC systems, which require annual maintenance. You’ll have to schedule these maintenance jobs and hire professionals to keep your HVAC systems running smoothly.
Conclusion
To sum it up, buying a home is an expensive endeavor, but it’s worth the effort in the long run. As rent control laws diminish, it’s a smarter financial strategy to purchase a home rather than rent one. If you’re buying a home, don’t let all these different costs intimidate you.
As a homeowner, you’re more secure and in control. You can treat your new home as a place to grow your family. Alternatively, you can take advantage of your new asset, leasing it to renters and earning a stable monthly income.
