When individuals and families begin their search to find their perfect home, they often budget their costs to only the list prices they come across. Although the list price of a home is the amount the house is worth, there are many other cost factors to consider when purchasing a home. In the home-buying process, costs are much greater than just the home value. Below are the costs that many people forget to consider during this process.
Generally, closing costs can range from 2%-5% of the cost of the home. For a home purchase of $400,00, closing costs can range from $8,000-$20,000. They are sizable costs that need to be factored into any home buyer’s budget. Closing costs cover items such as loan origination fee, home and pest inspection fees, appraisal, prepaid property taxes and mortgage insurance, title insurance, and etc. The closing of a home purchase is a very important aspect of the process. Without having the funds to pay for the closing costs could delay or completely end the process of buying your perfect home.
A cost that apartment dwellers do not have to worry about is home insurance. Once you become a homeowner, you take on the responsibility of the property that you live in. It would be best to check the cost of home insurance on the property you are interested in before committing to purchasing it. Home insurance covers unexpected damages caused by a fire, natural disaster, or a pipe burst. It also covers medical costs for anyone who is injured on your property. Most lenders require you to purchase home insurance when buying a home.
Otherwise known as private mortgage insurance (PMI), mortgage insurance is required if you are unable to put down 20% of the home value you are looking to purchase. PMI protects the lender in case the loan is not paid and ends up defaulting. It ensures that the lender will still be paid by the insurance company regardless of your ability to pay. In short, mortgage insurances increases your monthly mortgage bills.
Property taxes paid by homeowners help to fund public schools, state fees, and other governmental institutions. Property taxes are included in your monthly mortgage payments, thus increasing your monthly mortgage payments even more. Taxes vary depending on where you live. It would be best to discuss the tax rate of the neighborhood you are interested in with your real estate agent