If you don't consider all the costs of buying a home, your monthly expense budget can be flipped on its head once you become a homeowner!

When you come across a good home loan offer, you might think, "excellent, I can afford my dream home." And while you might be able to, the costs associated with buying a home go beyond the monthly mortgage payment. To determine how much you can afford, it's vital to factor in additional expenses, including closing costs, insurance, taxes, down payments, and other costs, before committing to a mortgage.

Read on to learn the cost of buying a home!

Key Takeaways:

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  Understanding the cost of buying a home can help you work through the necessary steps to take throughout the process.

  
  


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  Start by getting your finances in order and saving for the down payment, closing costs, and other ongoing related costs.

  
  


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  The cost of buying a home can add up quickly, so it's vital to prepare. You'll want to save money, improve or maintain your credit, and compare lenders to get the best interest rates and terms. 

  
  

Down Payment

A down payment is part of a home's buying price you pay upfront instead of financing it through a mortgage. For instance, if you're buying a $300,000 home and putting 10 percent down, or $30,000, you'd get a mortgage for $270,000. For conventional and FHA loans, a down payment is required, but the amount needed depends on the home's price, property type, and mortgage product. There are loans without a down payment requirement, for instance, USDA loans for borrowers buying in designated areas and VA loans for eligible service members and veterans.

Essential Note: While the average down payment homebuyers pay is 12% and 6% for first-time homebuyers, putting a down payment of 20% and above helps you avoid premium mortgage insurance (PMI). 

Closing Costs

Closing costs are third-party and lender fees paid at the close of your real estate transaction. Essentially, they're part of the expenses you cover the day you sign off on all the paperwork and get the keys to the house. Typically, the closing costs are shared between the seller and buyer. As a buyer, you can expect to pay the following closing costs:

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  Lender fees, for instance, application, origination, and credit check fees

  
  


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  Home inspection (optional but highly recommended) or a lender-required inspection

  
  


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  Home Appraisal

  
  


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  Title search and insurance fees

  
  


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  Real estate attorney fees

  
  


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  Escrow fees

  
  


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  Discount points

  
  

When you're preapproved for a mortgage, you'll receive an official Loan Estimate outlining all the closing costs. That document will clarify which costs you can shop around for and negotiate and which are non-negotiable. 

Property Taxes

You typically don't pay property taxes when renting a home or an apartment. However, you'll need to budget for taxes as soon as you own a home. Property taxes are paid to local governments for aspects like roads, public schools, and fire departments. Most areas calculate tax dues based on the percentage value of your home. If your home's worth more or you live in a more expensive area with higher local tax rates, you'll pay more. 

Your mortgage lender may hold your property taxes in an escrow account (a neutral third-party account that holds funds for a future purpose). The lender will basically add your property tax to your monthly payment and then move those funds to an escrow account until your taxes are due. That way, you can pay taxes in small increments throughout the year instead of worrying about a single large payment. 

Utilities and Maintenance

Some monthly bills, such as Wi-Fi, won't be any different from renting. But others may take a larger bite out of your budget- unsurprisingly, heating and cooling a home can cost considerably more than keeping an apartment comfortable. As a homeowner, you can therefore expect to cater for utility bills, including electricity, gas, water and sewer, trash and recycling, home internet, or Wi-Fi. 

Consumer Price Index indicates that the average monthly cost for electricity, heating, and cooling is $311.69 for urban consumers, while the water bill is $83 a month. Trash and recycling costs vary by area- sometimes, you may pay privately, while in other places, the city or municipality handles one or both services. But generally, trash pickup bills range from $15 to $100 per month.  

Note: You may also want to pay someone to take care of routine maintenance that may have previously fallen on your landlord, for instance, yard care, snow removal, or HVAC tune-ups.

Insurance and HOA Fees

As a homebuyer, you'll have to consider the cost of homeowners insurance. It's a type of insurance that protects you against covered damages and losses in your home. For instance, if your homeowners' insurance policy covers protection against fallen trees and a tree falls on your home, the insurance provider would pay for the cost of repairing your home. 

Moreover, you might also need to budget for homeowner association fees (HOAs). These cover the cost of maintaining common community grounds, for instance, sidewalks, lawns, and community parks. The amount you pay in HOA fees depends entirely on where you live, but typically, the fees can range between $200 and $1500 a month, depending on amenities. 

Need Help Buying a Home? Contact the Experts!

When deciding whether you're financially ready to buy a home, it's vital to account for both the upfront cost of purchasing a home and the expenses you'll need after closing. For more information about the cost of buying a home, consult our real estate agents. And if you're ready to own a home, our experts are readily available to help you. We'll help you find and make an offer on your dream home and negotiate on your behalf to ensure you get the most out of the homebuying transaction. Call us today!