Costs of Buying a House

When purchasing a home, many first-time buyers tend to focus solely on the listed sales price – which is definitely an important aspect – but often forget about other fees and expenses that come with it. In order to help you get prepared for all the costs you’ll encounter, let’s take a closer look at both the upfront expenses and fees of buying a home and the long-term costs of owning your first home.

Upfront Costs

Let’s begin with the upfront costs you need to consider when buying a house. These costs represent a significant investment. This includes expenses like inspections, appraisals, and earnest money. Once you factor in these expenses along with the purchase price, the total cost of buying a home starts to snowball.

Now, let’s dig into the specific fees and expenses that first-time home buyers should be prepared for upfront.

The Down Payment

You may not realize it, but your down payment is usually the most significant expense. It is a percentage of the purchase price of your new home and the first major payment you make. For instance, if you’re buying a $200,000 home and putting 10% down, you’ll need $20,000 for the down payment at closing.

It’s worth noting that many first-time buyers mistakenly believe that a 20% down payment is necessary to buy a home. However, that’s not strictly required. You can purchase a home with as little as a 3% down payment using a conventional loan. Some government-backed mortgages even offer the possibility of a 0% down payment requirement.

Now, let’s consider some benefits to making a larger down payment:

1. 1. Avoiding PMI: If your down payment is less than 20% when using a conventional loan, you’ll have to pay for private mortgage insurance (PMI). It gets added to your monthly payment and protects the lender in case you default on the loan. By putting down 20% or more, you can avoid PMI altogether.

1. 1. Securing a Lower Interest Rate: Lenders find loans more attractive when you borrow less money. With a larger down payment, your lender can offer you a lower interest rate, which saves you money in the long run.

1. 1. Qualifying with a Lower Credit Score: Having a larger down payment may enable you to get a mortgage even if your credit score is lower. For instance, with Rocket Mortgage®, you can qualify for a Federal Housing Administration (FHA) loan with a credit score as low as 580 if you put down at least 3.5%.

1. 1. Reducing Monthly Payments: A higher down payment reduces your monthly mortgage payment. Taking the time to save more before buying will help you better manage your monthly mortgage payments in the long term. So, although a 20% or larger down payment is not a requirement to buy a home, it has its advantages and can unlock more mortgage options.

If you’re concerned about meeting the down payment requirements, you can explore down payment assistance programs. There are many options catered exclusively to first-time home buyers. However, keep in mind that not all lenders accept all types of down payment assistance programs. If you’re interested in using down payment assistance with a Rocket Mortgage loan, it’s best to contact a Home Loan Expert to confirm that the program is compatible.

Now, let’s talk about earnest money. First-time home buyers should be prepared to offer earnest money. This money shows the seller that you’re serious about purchasing their home. Once the deal is finalized, the earnest money deposit is applied to either your down payment or closing costs.

To protect your earnest money deposit, make sure you include a contingency in your purchase agreement. This contingency will come into effect if the deal falls through, ensuring you don’t lose your money.

Closing Costs

These costs include fees, taxes, and administrative expenses related to the home purchase. They cover services such as appraisals, title insurance, origination fees, lender fees, and inspections.

Similar to your down payment, closing costs are due when you’re ready to close on the loan and officially become the legal owner of the property.

Lastly, don’t forget to consider the cost of moving to your new home. The upfront costs of buying a home don’t end after you sign on the dotted line. If it’s a local move, the average cost typically hovers around $1,700. For long-distance moves exceeding 100 miles, expect the costs to increase substantially. Long-distance moves can range from $2,000 and up.

I hope this breakdown of costs has given you a clearer picture of what to expect when purchasing your first home.    Contact us today!