When it comes to buying a home, whether your first or tenth, understanding exactly what goes into buying it, especially when it comes to money, is crucial. Outside of the direct cost of a home, there are various fees associated with purchasing a home. Those fees can sometimes vary based on the offer presented to the seller, the current market conditions, and the type of home loan you decided to go with (and qualify for!).
Although it would be magical if all we had to worry about was the listing price, that’s just not the reality of the housing world. The good news is that my team and I believe in the power of transparency and getting you as ready as possible for the new big adventure in your life: a home purchase.
After you land on a favorable mortgage offer and solid preapproval, it’s important to remember that, although exciting, having a comfortable amount of money saved ahead of time will help you tackle all the fees associated with buying a home without the added worrying of scrambling to get your ducks in a row as you’re on the hunt for your dream home.
Let’s break down the costs associated with buying a home so that when you’re ready to step into the world of homeownership, you are ready and able to afford the home you adore.
1. Down Payment
A down payment is the amount of money you put down, upfront, on your total home purchase. It is deducted from the total purchase price at the time of sale and not part of your standard mortgage payment. Most home loans require a down payment of some kind. If you are opting for a conventional or FHA loan, a down payment is required. FHA loans require a down payment of at least 3.5%, while conventional loans vary based on property type, location, and loan terms. Conventional loan down payment amount is typically anywhere from 3% to 20%.
The only loans that do not require a down payment are VA loans (available only to military members) and USDA loans (used to purchase homes in rural areas as designated by the USDA).
It is a good rule of thumb to have about 10% of the total home cost saved for a down payment. If you spend less, great, as that can be used to cover other fees.
2. Closing Costs
Before you can get keys in hand for your new home, closing cost payout is required. “Closing costs” is an umbrella term used to describe all the fees associated with pulling a mortgage. Typically, they range from 2% to 5% of your loan’s principal.
Although different for every situation, they often include:
- Credit check fee
- Application cost
- Home inspection
- Underwriting fees
- Title search
- Title insurance
- Transfer tax
In some cases, the sellers will cover closing costs (in partial or full) based on the terms of the final offer. Therefore, it is important to speak with your loan officer to determine exactly what fees you’ll need to pay out under your specific closing costs.
3. Homeowners Insurance
This type of insurance helps to protect you financially from unexpected events that could significantly damage your home. Think natural disaster, theft, or in-home accidents, like fire.
Homeowners’ insurance isn’t required by law, but most mortgage lenders require it. The cost varies by loan details and location and the options seem quite endless for coverage. We always encourage you to compare different options and rates to choose one that best suits your needs and budget.
4. HOA fees
If you’ve purchased a home within a designated community, there may be HOA or homeowner’s association fees you have to pay on a monthly, quarterly, or yearly basis. Although different for everyone, the specifics of your HOA requirements will be outlined in your homeowner’s purchasing agreement. Fees are extremely variable and are set into place by the homeowner’s association of your community.
Your dues cover specific services that the association provides, which may include security, a pool, a gym, or landscaping and maintenance.
5. Property Taxes
Like any big purchase, tax is something that comes with the territory. In most cases, property tax is included in your monthly mortgage payment but is separate from the interest and principal portions. Property taxes are paid for the entirety of homeownership and are based on the assessed value of your property.
There are various fees outside of the standard purchase price when purchasing a home to keep in mind. Although these are the most common and general fees, other fees could include home upkeep, renovations, or other non-standard items or requirements based on your unique home, location, or needs.
If you’re in search of your dream home and hoping to secure the funds needed to purchase, we’d love to help you through the process. Contact us today to start your journey to homeownership in New England.